The Bank of England on Thursday predicted that the UK economy would enter a recession by the end of the year as it raised interest rates by the largest amount in more than 27 years, pushing to tame accelerating inflation driven by the fallout from the Russian war in Ukraine.

The three-quarter percentage point interest rate hike pushed the bank’s key rate to 1.75%, the highest level since the depths of the global financial crisis in December 2008.

Most economists expected the increase after Governor Andrew Bailey said two weeks ago that the UK central bank would act "forcefully" if the inflation outlook worsened.

The bank said inflation would accelerate to more than 13% in the last three months of the year and remain "very high" for much of 2023.

The forecast reflects a sharp increase from its 40-year high of 9.4% in June, painting a grim picture for the future, as people already face a cost-of-living crisis that has led to rising costs of everything from groceries to utility bills.

Bank experts say inflation will reach its highest level in more than 42 years amid a doubling of wholesale natural gas prices linked to the war.

Energy prices will push the economy into recession with GDP shrinking every quarter in 2023.

The bank said, "Growth afterwards will be very weak by historical standards."

Central banks around the world are struggling to control rising inflation without pushing economies into recession that had just begun recovering from the coronavirus pandemic.

High interest rates increase borrowing costs for consumers, businesses, and the government, which tends to reduce spending and ease price rises. But such moves are also likely to slow economic growth.

External pressures have become an integral part of the UK economy, as public and private sector workers demand wage increases to prevent inflation from eroding their living standards.