In a shock announcement, the BoE forecast that the economy would shrink at the end of this year and continue contracting through the whole of 2023.
The former chancellor, who has argued that Ms Truss’s planned tax cuts are inflationary, told a Tory leadership debate organised by Sky News: “I’m worried that Liz Truss’s plans will make the situation worse.”
For her part, Ms Truss insisted that a recession was not “inevitable” and repeated her belief her plans would stimulate growth.
She is widely seen as the frontrunner to win the keys to No 10, after a series of polls suggested she has a significant lead over her rival.
But in a direct appeal to party members, Mr Sunak warned the Conservatives had to “get real and fast” because “the lights on the economy are flashing red and the root cause is inflation. I’m worried that Liz Truss’s plans will make the situation worse”.
He has his own plan to grow the economy, he said: “But it all starts with not making the situation worse, because if we just put fuel on the fire of this inflation spiral, all of us, all of you, are just going to end up with higher mortgage rates, savings and pensions that are eaten away, and misery for millions.”
He also said that “of course” there were steps that could be taken to prevent a recession.
But he added: “It’s not the tax burden that is causing the recession. That’s simply wrong. What’s causing the recession is inflation.”
Mr Sunak also rejected a suggestion he would pull out of the race. “The quick answer is no, and that’s because I’m fighting for something I really believe in and I’m taking my ideas around the country,” he said. “The stakes are really high.”
During occasionally heated exchanges with members of the audience, Ms Truss was also asked to apologise for her “offensive” plan to cut public sector pay outside London and the South East.
The Bank of England has predicted the economy will plunge into the longest recession since the financial crisis in 2008 later this year. It also warned inflation could peak at 13.3 per cent in October.
In response, interest rates were raised to the highest level in nearly three decades, from 1.25 per cent to 1.75 per cent, increasing the pain for many mortgage holders.