The economic outlook for the UK and the rest of the world has “materially deteriorated,” according to a warning from the Bank of England.
Global energy and fuel prices are rising swiftly, which accelerates price growth in general.
According to the bank, UK banks are equipped to withstand even a severe economic downturn.
In order to make sure they can weather any storm, it urged banks to save more money in rainy day accounts.
These findings were reported in the Bank’s most recent Financial Stability Report.
British forecasts assert that their country is more susceptible to recession and consistently higher inflation than other Western countries, which are all coping with shocks from the energy and commodities markets.
The UK banking sector was well-positioned to weather a severe downturn, according to the Bank, but banks needed to increase the amount of money they set aside to withstand shocks.
At the start of next year, banks will be required to set aside a sum equal to 2 per cent of their assets as a buffer, in place of the customary 1 per cent.
The rate may move either way, according to the Financial Policy Committee, depending on how the state of the global economy plays out.
Pressure on households has grown as the cost of food, petrol, and other necessities have surged recently.
Home energy expenses skyrocketed after the price cap for the average household was hiked by 54% to £1,971 in April.
Debt issues may affect some households. About 80% of mortgages currently have fixed interest rates, but about 40% are scheduled for renewal this year or the following year, which could mean greater costs for these people.
Despite growing pressure on household budgets, the bank asserted that financial institutions remained resilient to debt vulnerabilities among consumers and businesses.
The pound hit a two-year low on Tuesday, losing 1.6 per cent against the dollar.
Another hike in petrol prices in Europe and the UK, which could push inflation higher once more, has fueled growing concerns that the economy will experience a recession.