Bank of England's dire recession warning too 'optimistic' on gas threat, economists say

Brits are even more affected by the level life and a recession longer than the Bank of England expects as Russia poses a greater threat to Europe's gas supplies, economists have warned.

Experts said even the Bank's worst-case scenario fails to factor in the likelihood that gas prices, which have doubled in three months, will rise further.

That calculation now looks "increasingly optimistic", said investment bank UBS, while analysts at Capital Economics warned that it was now "possible" for Vladimir Putin to completely halt gas flows from the Russia to Europe.

Despite a number of increasingly severe warnings of the risk of gas shortages in Europe, the Bank of England has declared that it does not need 'examine the potential impact of this scenario.

A Bank source said the objective of his report was not "to construct the worst-case scenario by plugging in ever more inflationary potential paths for energy."

This comes after the Bank released one of its most recent economic outlooks on Thursday. bleak, while raising interest rates and further squeezing household budgets,

The Bank predicts that a deep recession will hit before Christmas and will last through next year, with revenue down by a record amount, inflation peaking at 13.3% and almost no economic growth through the end of 2025.

But none of the Bank's modeling took into account account rising gasoline prices, a scenario that analysts say is now one in five possibilities. Oxford Economics said it was difficult to set an upper limit on how gas prices could rise if supplies started to run low.

A further rise in prices is now more likely than a decline, said Paul Dale, chief UK economist at Capital Economics. "You could see a further increase in gas prices, which then stay higher for longer. We don't expect gas prices to come down quickly."

"The Bank essentially forecasts stagflation and suggests that the drug raises interest rates. This is truly remarkable.

Although the Bank has not modeled the impact of higher prices, the figures it has released indicate that it estimates that every 25% increase in gasoline prices would raise inflation by one percentage point and reduce economic output by 0.6 percentage points.

If gasoline prices were expected to double again this winter, inflation would hit 17.3% and the economy would collapse 4.6%, a single-year drop bigger than during the global financial crisis in 2009

Edward Gardner, commodities specialist at Capital Economics, said gas prices will remain "very high" in the short term.

"There are clearly price risk advantages as Europe remains dependent on Russian gas. If Russia were to completely cut off supplies and we had a cold winter, that would be a perfect storm scenario.

Wholesale prices are ten times higher than they were just over a year ago, at an unprecedented €200 per megawatt hour after the oil giant Russian Gazprom further reduced its flows to Europe last month.

Capital Economics estimates prices would hit €250 (£211) if Russia cuts supply further. However, Mr. Gardner said prices could still rise much more.

"When you have shortages of products that people need for their basic needs, it's a question of who has the biggest pockets?"

"Unfortunately, many people will not be able to afford these prices."

He added: "Russia has taken a step ahead of the Europe's desire to gradually reduce its dependence on Russian gas. Europe wants to reduce its dependence on Russia by two thirds by the end of this year. Russia has already done it for us There is clearly a risk that this will force Europe to reduce dependency even further.

Andrew Goodwin, Britain's chief economist at Oxford Economics, said a further significant increase in gas supply was plausible." This is certainly a distinct possibility and something our customers are preparing for.

"It would be extremely damaging. wheat. We believe this would mean UK GDP would fall by 2.5% next year."

Felix Huefner, senior economist at UBS, said economic data from across Europe , "everything indicates that things are weakening...