The Bank of England believes that the painful squeeze on living standards is set to intensify and will push the UK economy into recession later this year.
The bank moved to stem the pace of rising prices on Thursday, increasing interest rates from 0.75% to 1%, their highest level since 2009.
Inflation is at a 30-year high and set to hit 10% by the autumn as the Ukraine war drives up food and energy prices.
The Bank forecasts that the UK economy will shrink later this year in the face of that double-digit inflation.
The technical definition of a recession is typically two successive quarters of contraction.
The Bank's projections imply a sharp fall of nearly 1% in the final quarter of this year, as energy bills rise in line with the latest Ofgem price cap, followed by weak GDP, for most of 2023 and another quarter of contraction that autumn.
It said that unemployment would also begin to climb, with the rate rising to 5.5% by the middle of 2025.
Andrew Bailey, the Bank's governor, said total real household disposable income is projected to fall by 1.75% in 2022 which - apart from 2011 - will be the largest contraction since comparable records began in 1964.
"I recognise the hardship this will cause for many people in the UK, particularly those on the lowest incomes, often with little or no savings, that were hit hardest by increases in the prices of basic necessities like food and energy," he said.
Asked if he is making life tougher for families by increasing interest rates, he told Sky News: "What would make it even tougher for families is if inflation kept on rising even more."
Following the latest rise in interest rates, two million homeowners will see an immediate increase in their monthly mortgage repayments with other loans potentially getting more expensive too.