The Bank of England governor sounded an “apocalyptic” warning on Monday over looming food shortages caused by Vladimir Putin’s invasion of Ukraine.
Andrew Bailey told MPs of his “major worry” over food supplies, particularly to the developing world.
Appearing before the Commons Treasury Committee, he was asked about a range of subjects.
“I’m afraid the one I’m going to sound I guess apocalyptic about is food,” he said.
Mr Bailey added that after speaking with the Ukrainian finance minister at an International Monetary Fund meeting in Washington, future supplies of many staple foods were in doubt.
“This is a big concern,” he said.
“Two things the Ukrainian finance minister said, one is Ukraine does have food in store but it cannot get it out at the moment.
“Two, Ukraine is a major supplier of wheat, a major supplier of cooking oil, he was pretty optimistic about planting interestingly, but he said at the moment we have no way of shipping it out as things stand.
“That is a major worry and it is not just a major worry for this country, it is a major worry for the developing world as well. Sorry for being apocalyptic but that is a major concern.”
His comments came just days after a UN food chief warned that millions of people will die around the world if Mr Putin does not lift his blocking of Ukraine’s ports.
David Beasley, head of the United Nations World Food Programme, pleaded with the Russian president to end the blockade of Black Sea ports.
“Millions of people around the world will die because these ports are being blocked,” he warned.
He emphasised that the historic port of Odesa, which has come under heavy Russian bombardment, and other ports needed to be operational within the next two months to avoid catastrophe for Ukraine’s economy which is heavily focused on agriculture, recently accounting for just over 40 per cent of its exports.
Ukraine is among the top five global exporters for several vital agricultural products, including corn, wheat and barley, according to the US government, as well as being the top exporter of both sunflower oil and meal.
Mr Bailey also warned of job cuts in Britain driven by a “very big real income shock” hitting the economy as inflation soars, possibly into double digits later this year.
He also repeated his plea that high-earners should “think and reflect” before asking for high wage increases, to avoid fuelling an inflation spiral.
He was grilled by MPs about why the BoE had got its inflation forecast so wrong to what is actually happening.
The governor stressed the series of unprecedented shocks including Covid and the Ukraine war.
He told the committee: “The main driver of the profile of inflation particularly what brings it down is the very big real income shock that is coming from these outside forces, particularly from energy prices now and still global goods prices.
“That real income shock is going to have an effect obviously on domestic demand, it’s going to dampen activity, I’m afraid...we think it will increase unemployment.
“That will have a much bigger effect than the effect of the increases in the bank rate which we do, that is the big driver in terms of the downwards pressure.”
He continued: “By the way that is also what is putting us in this challenging position at the moment.
“We have got what we call a trade-off where the pressure upwards on inflation is being matched by downward pressure from the real income shock coming in.
“Managing our way through that, I have used the analogy of walking a very narrow path.
“That’s a very challenging environment.”
On wage rises, he added: “I do think people, particularly people who are on higher earnings, should think and reflect on asking for high wage increases.
“It’s a societal question. But I am not preaching about this. I was asked if I have taken a pay rise myself this year and I said no, I had asked the Bank not to give me one, because I felt that was the right thing for me personally.
“But everybody must make their own judgement on that. It’s not for me to go around telling people what to do.
“In that sense I know I may have been interpreted as doing that, but I wasn’t. What I was saying is that maybe people should reflect on it, particularly people in that situation.”
Mr Bailey also explained how the Bank’s experts had been surprised by the large fall in the labour market force, of around 450,000, compared to before the Covid-19 pandemic.
“We have got a very tight labour market,” he said.
“We have seen a fall in the size of the labour market force.
“Since the end of 2019, before Covid, we have seen a fall in the size of the labour market of around 450,000, about 1.3 per cent of the labour force.
“At the margin in the labour force, it’s a big number, it’s a very big fall in the labour force by historical standards.
“It reflects a three per cent increase in the number of economically inactive people...somebody who does not have a job and who is not searching for one.”
He continued: “The persistence and scale of this drop has been a surprise to us.”
He also stressed that there had been a 320,000 increase in the number of people who are long-term sick.
“We have got this long-term sickness element which is quite large. We don’t know much really about what is behind that,” he said.
“We have discussed it with health experts, we have asked is it Long Covid, is it people, as some health economists have suggested to me, with other pre-existing conditions who feel insecure about going to work in the Covid era?”
The 2007-08 financial crisis saw a much smaller fall in the labour force, he added, and it recovered much more quickly.
These latest factors were behind the Bank lowering its projected view of labour participation to be “flat” at around 63 per cent of the working age population, compared to an earlier expectation that it would recover further.
Mr Bailey defended the bank’s inflation forecasts, and the Monetary Policy Committee’s action on interests rates, amid accusations that it has been too slow to raise them.
“As you say, there have been a series of supply shocks and most recently with the impact of the war, Russia’s invasion of Ukraine,” he said.
“We can’t predict things like wars - that’s not in anybody’s power.
“I don’t think we could have done anything differently; we could not have seen a war with Ukraine.
“There is also a further leg of Covid, with the situation in China, which appears to be affecting the country more seriously.”
