When bad news comes, it comes thick and fast. For months the credit crisis has rumbled around the financial markets, hitting the property market hard but leaving Britain’s “real” economy apparently little affected.

For months, too, commodity and energy prices have been setting new records almost daily — oil prices soared to nearly $128 a barrel on Friday — without apparently pushing inflation up much.

All that changed last week. Alongside more gloomy news on housing — with more than 95% of surveyors saying prices are falling, and a government minister inadvertently revealing that officials expect a 5% to 10% price fall this year — came the first sign of a softening in the jobs market. The government’s preferred measure of unemployment rose by 14,000, while revisions to back data meant that the old jobless claimant count has now risen for three months in a row.

The news on inflation was even more alarming. Industry’s raw material and fuel costs jumped 23% last month compared with a year earlier, driven by oil and food rises, while manufacturers’ “factory” gate prices were up by 7.5%.

Both were record increases in data going back to 1986, and so they were bigger than in the inflationary boom of the late 1980s, yet there was a bigger shock to come. Analysts had expected consumer price inflation, the government’s target measure, to hit 3% by the late summer. Instead, official figures showed it jumping from 2.5% to 3% in a single month.

As luck, or bad luck, would have it, last week saw the scheduled publication of the Bank of England’s quarterly inflation report. Analysts had expected Mervyn King, the governor, to warn that the Bank would be walking a tightrope between short-term upward pressures on prices and the downward pressures on the economy from the credit crunch. Most expected the Bank to tiptoe towards a cut in Bank rate in June and one or two more before the end of the year.

Instead, King repeated his warning that the “nice” decade was over and said the sharp slowdown the economy was heading for would mean a higher risk of recession.

Alongside this, however, he also warned that inflation would reach 3.7% later in the year, with the risks around this tilted to the upside, and that he would have to write a series of open letters to Alistair Darling, the chancellor, explaining why inflation, at more than 3%, was so far above the official 2% target.

For the markets the implications were clear. The rate cut that had been pencilled in for June was rubbed out and the markets reappraised the prospect for future reductions.

“The message of the past week is that the twin shocks hitting the economy — the credit crunch and inflation — are getting worse,” said Michael Saunders, an economist at Citi, the investment bank. “Even if we don’t get recession, it is going to be very close.” King’s “nice” economy — non-inflationary, consistently expansionary — had been replaced by a “vile” economy — volatile inflation, less expansionary, said Saunders. He expects the slowdown to intensify with growth of less than 1% next year and only a modest rebound in 2010.

Danny Gabay of Fathom Consulting, a former Bank economist, said: “Monday was pretty bad, Tuesday was awful and Wednesday confirmed our worst fears. The Bank of England seems to have run out of road. It doesn’t mean Armageddon but it does look increasingly like recession.”

So the statistics are bad and the forecasts are gloomy. But how bad is it out there in the wider economy?

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