Bank of England governor Andrew Bailey warning of growing cost-of-living crisis
(Picture: PA Wire)Bank of England Governor Andrew Bailey warned on Monday that real incomes in Britain are set to be hammered by an economic shock from soaring energy prices bigger than in any single year in the 1970s oil crisis.
He issued the stark warning as Chancellor Rishi Sunak was being grilled by MPs on the Commons Treasury Committee about whether his Spring Statement had done enough to protect millions of households from a painful cost-of-living squeeze.
Inflation is set to average 7.4 per cent this year as energy bills spiral after the Covid-19 pandemic and as world markets are rocked by the Ukraine conflict.
The inflation rise will almost certainly outstrip most wage increases, meaning real-term pay cuts for millions.
“This really is an historic shock to real incomes,” Mr Bailey told an event held by the Bruegel think tank in Brussels.
“The shock from energy prices this year will be larger than every single year in the 1970s.”
Duel fuel gas and electricity bills are set to spiral on average to just under £2,000 a year on April 1 after the energy cap was lifted in response to wholesale prices soaring and there are concerns they could rocket even higher.
The Office for Budget Responsibility’s documents, published alongside the Spring Statement last week, warned Britain faces the biggest fall in living standards in a single year since the 1950s, with the tax burden also rising to the highest since the late 1940s.
Mr Sunak has increased the threshold for paying National Insurance to £12,570, cut fuel duty by 5p a litre and pledged to reduce the starting rate for paying income tax from 20p to 19p by 2024.
However, he is coming under pressure to do more to help struggling families now given the tight squeeze on living standards, partly caused by the 1.25 percentage points hike in National Insurance contributions next month to plough an extra £12 billion into the NHS and to tackle the social care crisis.
Mr Bailey added that huge swings in commodity prices mean resilience in financial markets cannot be taken for granted and central bodies and authorities are watching the situation very closely.
“Liquidity conditions have deteriorated in many commodity markets, margining costs have risen, which is of course a reflection of much higher volatility and risks in these markets,” he said.
“We can’t take resilience in particularly in that part of the market for granted. There’s a strong need to work together on this.”
