The cost of living crisis is really quite bad already but it is on course to be a lot worse before it gets better. The Bank of England has raised interest rates by a quarter-point to 1 per cent. This rather cautious move is an attempt to cool inflation that it now expects will hit a 40-year high of 10.25 per cent sometime this autumn.

It is the fourth consecutive rate rise since last December when rates were at a record low of 0.1 per cent.

However, the nine-strong committee of rate-setters was divided on how much to raise rates. Six members, including Andrew Bailey, the governor, voted to raise rates by 0.25 percentage points and three wanted a 0.5 point increase.

Britain’s central bank has slashed growth expectations after the war in Ukraine raised the price of raw materials and commodities and worsened supply disruptions. Alongside this, the BoE has raised its expectations of both inflation and an economy falling into recession next year with the economy due to shrink by 0.25 per cent. The Bank’s previous forecast was way off the mark as it forecast 1.25 per cent growth.

Householders are now facing one of the most significant hits to their take-home pay since records began in 1964. Real income, the value of earnings after adjusting for the impact of inflation, will fall this year by at least 1.75 per cent according to the Bank’s latest projections. This prediction includes the impact of government support for households, making the assumption that you qualify.

The only other time it contracted by as much was in 2011 during George Osborne’s disastrous austerity measures that saw a decline in economic activity across the board, household incomes and support for those most vulnerable. As predicted here at The Economic Times, inflation and recession – called ‘stagflation‘ is now expected during next year and a period of prolonged price instability in what will look more like a war economy is becoming more likely.