Great Britain is expected to adjust to “worsening economic prospects” in the coming months

The UK’s economic outlook has “deteriorated significantly”, leaving households with a “very uncertain” future, the Bank of England has warned.

Families’ budgets are likely to be “stretched” in the coming months, the bank said in its latest Financial Stability Report.

Meanwhile, commercial banks have been told to redouble their defenses against a possible recession.

Inflation – already at a 40-year high of 9.1% – is expected to hit 11% by autumn.

Rising prices forced the bank to raise interest rates for the fifth straight month last month.

Adhering to the new 1.25% rate will make debt repayments more expensive for businesses and households, she added: “Given this, we expect budgets to be tighter in the coming months.”

The double whammy of rising costs and interest rates will “probably lead to some business failures,” he added.

Britain’s bleak financial outlook is said to be mirrored by the rest of the world, with Russia’s invasion of Ukraine largely responsible.

The impact of the war “could be even more disruptive to global energy and food markets,” the report added, with further shortages on supermarket shelves and soaring energy bills.

Bank Governor Andrew Bailey said the UK banking system “remains strong” despite the weakening outlook but will face a stress test later this year.

The resilience tests will ensure people’s deposits remain safe even in the face of “deep simultaneous recessions in the UK and the global economy, real income shocks, sharp falls in asset prices and higher global interest rates”.

The tests were scheduled to take place in March but were pushed back to September so economists could see how the conflict between Ukraine and Russia would unfold and affect global markets.

More rate hikes could be on the horizon “depending on how the risks play out,” Mr Bailey added.

Danni Hewson, financial analyst at investment platform AJ Bell, told MailOnline: “We’re about to have a long, cold winter.

“Right now, the long, bright days and warm temperatures are not only keeping energy costs down, they are also helping to bring at least some extra visitors onto the high streets.

“But there’s a long, cold winter waiting in the wings and one that can’t be hidden under bushels of tinsel and pretty lights, especially as the tills are expected to brighten.”

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