Bank of England rate hikes will push the UK into a year-long recession, economists warn.
Bloomberg Economics forecasts a downturn from the end of this year if the Bank increases interest rates to 5.75% in a bid to cool inflation.
But it says any recession will be shallow, wiping out 1% of output.
It raises the prospect of Britain being in recession, or coming out of one, by the next general election.
Economists Dan Hanson and Ana Andrade said: “As borrowing costs move above 5%, we think the risk of a financial stability shock increases exponentially.”
The Bank hiked rates from 4.5% to 5% last week in its latest bid to bring down inflation, which was 8.7% in May.
It is under fire for not taking action sooner.
Consumer champion Martin Lewis yesterday warned of a “nightmare year” for home owners as rate hikes raise borrowing costs.
The MoneySavingExpert.com founder expects more people to end up in mortgage arrears and some selling up.
He also told ITV: “I’m very worried for renters that they’re not able to afford to pay what they need.”
A new mortgage charter was agreed by lenders last week that will allow customers up to date with payments to switch to interest-only payments for six months or extend terms to cut monthly payments.
Property website Zoopla said 40% of sellers are accepting 5% or more off asking prices.
This month’s rate hike added another £67 to the average monthly repayments on a £200,000 mortgage.
