Factory gate inflation, including in the food industry, is running at above 10%
(Picture: Alamy Stock Photo)Pressure is growing on the Bank of England to deliver “distasteful medicine” in the battle against inflation as it hits a 30-year high amid warnings of much worse to come.
Headline inflation is at 6.2% in February, a sharp jump from 5.5% in January and far higher than economists had expected.
Even that figure will be surpassed soon, as global prices of energy, food and transport rocket.
Factory gate prices are already rising by more than 10%. Eight out of ten manufacturers expect to put up prices in the months to come, according to the Confederation of British Industry, the highest level since 1975.
Last week the Bank of England nudged interest rates up by 0.25% to 0.75%, while expressing concerns about the economy and warning that inflation would hit 8% by June.
That forecast already looks out of date to many, who think the Bank should be moving much faster.
Guy Foster, chief strategist at Brewin Dolphin, said: “Ordinarily, high food and energy costs would take wallet share from more discretionary spending – but, with the labour market tight, employees are well placed to argue for higher wages, which risks feeding into yet higher prices.
“The Bank of England cannot shy away from this challenge and needs to be prepared to administer some distasteful medicine.”
Jack Leslie at the Resolution Foundation said February’s figures are just a taste of what is to come, a squeeze that will be “a complete disaster for living standards”.
Danni Hewson, AJ Bell financial analyst, said: “What people experienced in February was just the tip of the inflation iceberg. Putting Russia’s invasion of Ukraine aside for the moment, next month’s rise in the energy price cap is massive. Even if the current warm spell continues, just keeping the lights on is going to ratchet up the pressure on household budgets.”
While higher borrowing costs will also hit households, the Bank seems to have little choice but to keep ratcheting up rates.
Separately, house prices keep going up. The ONS said today that in 2021, full-time employees had to spend 9.1% of their salary on mortgages, up from 7.9% in 2020.
If rates are shoved upwards, that will only make mortgages more expensive in the longer term as the cost of new fixed rate deals rises.
Average house prices in England rose by 9.4% to £292,000 in the year to January.
Comment: Bank of England should take a leaf out of the Fed’s book on inflation
