Closing summary: Cost of living squeeze to worsen
Time to wrap up...
UK households are facing their most painful squeeze in decades, after a day in which the cost of living crisis escalated.
In its latest forecasts, the BoE predicted that real post-tax labour income will shrink by 2% this year, and another 0.5% in 2023 - the worst squeeze in at least 30 years.
The Bank raised UK interest rates from 0.25% to 0.5%, the first back-to-back rate rise since 2004, as it tried to rein in the cost of living. Four of its nine policymakers pushed for a larger increase, to 0.75%, in an effort to dampen inflationary pressures.
The Bank now expects inflation will hit 7.25% in April - even higher than previously thought, and more than three times its target of 2%.
Governor Andrew Bailey defended the move, saying that “If we don’t take this action, it will be even worse.”
Bailey also warned that any military conflict over Ukraine would drive energy prices higher. And tonight, he’s told the BBC that some “moderation of wage rises” is needed to prevent prices rising out of control:
The Governor of the Bank of England has told the BBC that workers negotiating their pay this year should not ask for too high a rise in order to help bring inflation under control. Mr Bailey said he was concerned that rising inflation would become ingrained in the economy.
— Johny Cassidy (@johnycassidy) February 3, 2022
Energy bills are set to surge by almost £700 in April, after energy regulator Ofgem lifted the cap on bills by 54%.
The record increase is even more than analysts had feared, taking average bills to around £2,000 per year, and plunging many more families into fuel poverty.
The move prompted the government to step in with a package of measures to try to cushion the immediate blow.
Households will see £200 knocked off their bills in October, however this loan will be repaid with a £40 added to bills over the following five years.
Chancellor Rishu Sunak also announced a £150 discount to council tax for those in the A-D bands (the less-expensive properties).
Despite these measures, the Resolution Foundation thinktank said cases of fuel stress – where energy bills in a household exceed 10% of disposable income – would double to 5 million in April.
Sunak’s support package will not come close to providing enough help for struggling families, our columnist Polly Toynbee writes:
Everything about this energy policy is wrongheaded.
The Social Market Foundation and the Joseph Rowntree Foundation want any subsidy delivered as cash directly into people’s pockets – £500 to all on low incomes on universal credit, which was an efficient way during the pandemic of paying out that £20 uplift (and then snatching it back).
It’s greener and more dignified to give people money to spend as they choose, not forcing it on to their energy bills: with out-of-work benefits their lowest for 30 years, hard-pressed families may need to choose to spend less on energy and more on other necessities.
Energy producers faced fresh calls for a windfall tax, after Shell reported that its profits had quadrupled in the last year to $19.3bn.
In other news today:
Shares in Meta, the parent company of Facebook, have plunged by 25% today after it reported Facebook’s first-ever drop in daily users.
The slump has wiped around $220bn off Meta’s value, putting the social network giant on track for the worst slump in stock-market history.
LATEST: Meta's stock collapsed as much as 26% on Thursday morning, its biggest drop ever https://t.co/GjdfrDhcbt pic.twitter.com/IqT8EdJrhX
— Bloomberg Technology (@technology) February 3, 2022
Lorry drivers struck in long queues at Dover have warned that Brexit customs checks are causing delays.
Battery technology startup Britishvolt and its backer, the FTSE 100 metals and mining firm Glencore, have announced plans to build a plant capable of recycling lithium-ion batteries used in cars and electronic devices.
Future, the UK’s biggest magazine publisher that is home to titles from Country Life to Metal Hammer, has been forced into an embarrassing sit-down with investors after a bruising shareholder revolt. Some 60% failed to support its annual pay report – including a controversial bonus scheme in which its chief executive could be awarded £40m.
BT has entered exclusive talks with the US pay-TV firm Discovery to create a joint venture business that will include BT Sport, which has rights to sports including the Premier League and Champions League.
A cyber-attack targeting KP Snacks could lead to a shortage of some of Britain’s most popular snacks including Hula Hoops, McCoy’s and Tyrrells crisps, Butterkist, Skips, Nik Naks and KP Nuts.
Waitrose is ditching free newspapers for loyalty card-holders from 22 February in the latest example of supermarkets cutting costs amid surging inflation.
Goodnight. GW
Rupert Harrison of BlackRock, who was George Osborne’s chief of staff during the 2010-2015 coalition, warns that central bankers are making a collective mistake by tightening monetary policy just as economies slow:
Really feels like central bankers around the world are making a collective policy mistake - trying to use rapid rate rises to cool inflation that is driven mainly by supply constraints, just as growth momentum is slowing...
— Rupert Harrison (@rbrharrison) February 3, 2022
...how long before the inevitable reversal?
I think only in the US can you see anything like the hot labour market that would justify significant tightening - I really struggle to understand the Bank of England's reasoning today
— Rupert Harrison (@rbrharrison) February 3, 2022
