Banks are being told to double the cushion against fears of a recession in the coming months.

The Bank of England warns that Britain’s economic outlook has “significantly deteriorated” leaving households with a “highly uncertain” future.

The banks said in their latest financial stability report that households are likely to “stretch” in the coming months.

Meanwhile, commercial banks have been told to double down on their defenses against potential recessions.

Inflation is already at its highest level in 40 years at 9.1% and is expected to hit 11% this fall.

Banks raised interest rates five times in a row last month due to rising prices.

Acknowledging that the new 1.25% interest rate will increase the cost of servicing debt for businesses and households, he added, “With this in mind, we expect households to grow even more in the coming months.”

He added that rising costs and charges mean “some business failures are likely to occur.”

Britain’s dire financial outlook is said to be mirrored elsewhere in the world, largely due to the Russian invasion of Ukraine.

(From left to right) Sir John Kunriff, Governor of the Bank of England, Andrew Bailey, James Bell, Governor of the Bank of England, Sam Woods, Vice President of Prudential Regulation. He reported a press conference at the Bank of England in London. Photo date: Tuesday July 5, 2022. PA photo. See PA Story ECONOMY Bank. Photos Must Read: Stefan Rousseau/PA Wire

Bank of England chief warns store rates could rise further (Image: PA)

The effects of the war “could cause further turmoil in global food and energy markets,” the report added, adding that supermarket shelves are running low and energy prices are rising.

Banking Governor Andrew Bailey said Britain’s banking system was “still strong” despite the weak outlook, but said stress tests would be carried out later this year.

Resilience tests ensure that people’s deposits are safe in the event of a “simultaneous significant recession in the UK and global economies, a real income shock, a sharp drop in asset prices and high interest rates”. global interest”.

The test was scheduled for March, but was postponed to September so that economists can see how the conflict between Ukraine and Russia progresses and how it affects the global market.

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Bailey added that increased interest could “depend on how the risk arises.”

Danny Hewson, financial analyst at investment platform AJ Bell, told MailOnline:

“Currently, longer, clearer days and warmer temperatures not only reduce energy costs, but also encourage at least some additional scaffolding on major streets.

“But the wings have a long, cold winter, especially if it’s expected to be mild, and you can’t hide it under a tinsel bush or a clean light.”

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