The bank warned that the average household electricity bill is likely to hit £3,500 this October on the back of a sevenfold increase in gas prices triggered Russia’s war in Ukraine.
While inflation is expected to fall back to the bank’s target of 2% in pair of politicians have said they are ready to raise the stakes again “forcibly” if there were signs that price growth and wage increases have taken hold.
Bank survey of British businesses have shown that families already trading down to cheaper brands in their weekly supermarket shop. They were also currently more Most likely to repair rather than replace the broken one items and put off visits to the dentist.
Nadhim Zahavi, Chancellor, and Mr. Bailey Issue Joint Statement on Thursday night promisework carry down on inflation and consequences of rising Prices on households.”
Mr Zahavi has been criticized along with Prime Minister Boris Johnson. for Existence on holiday while the Bank published its gloomy economic outlook. Mr Zahavi said he was “working remotely”. on a family holiday. The Chancellor said, “There is no such thing as holiday and doesn’t work. I have never had this in in private sectors, nor in government. Ask any entrepreneur and he will tell you that.”
Four key drivers of in cost of living crisis
Speaking on On Thursday, Andrew Bailey, bank manager, of guilt for in spike in prices right at the doors of the Kremlin.
“The Russian shock is currently the biggest source of inflation in the UK, according to some way,” he said.
But this is not the only factor.
Here are four key drivers of in cost of Live Crisis:
Household electricity bills were rising fast before invasion but russian decision to attack Ukraine has raised prices.
In recent months, Moscow’s threats to halt European gas supplies have added to the pressure.
Mr Bailey said prices for gas supply at the end of this is year seven times higher how market forecast last year “In the vast majority of cases result of Russia restriction of gas supplies to Europe and risk of further curbs.
result massive rise in energy price lid in October. The bank expects 75%. jump.
“This would increase the typical annual dual- fuel bill from just less than £2,000 to about £3,500 in October,” the report says. of IPC report.
Ben Broadbent, Mr Bailey’s deputy, compared the situation to price turmoil of 1970s. Influence on family budget will be five times as strong as that shock five decades ago.
“Over the worst two-year period of 70s, between first quarters of 1974 and 1976, share of income goes on household utility bills rose 0.7 percent points so he soaked up so much of real income growth over period,” he said.
“Between first quarter of 2021 and 2023, we think this number will be around 3.5 percent. points is about five-times as big”.
Food expenses are also spiked like result of war, since Russia and Ukraine are major grain producers.
“The food situation was very serious and remains very seriously,” said Mr. Bailey, noting that jump in cost of essentials are especially harmful for families on low incomes.
There may be some reason to hope for an increase in these prices can slow down down soon as opposed to energy.
“Food prices on balance came down over in past months,” the governor said.
“It reflects fact which was pretty good news on productivity in other parts of in world. We all hope that the ship that left Odessa this week will be first of many and bring much-needed relief.”
inflation was problem before the war in Ukraine and more of pre-Ukrainian price growth came from chaos in global supply chains.
Covid has destroyed factories, ports and shipping routes and sent demand for physical goods dive like locked-down there were no families chance to spend them money on going out and looked for entertainment.
A little of it continues. Regular blocking in China persists because of the worldx second-the biggest economy continues”zero COVID-19″ strategy. It disrupts production in factories.
Bank of England said there were “some early signs that supply bottlenecks were beginning to be addressed” but “restrictions remained elevated”.
“Some indicators of shipping cost was declined from their peaks, while PMI polls showed that manufacturing deliveries times fell back in different regions.”
Mr Bailey said:series of supply shocks” due to Covid and the war had a cumulative impact: world economy struggling to recover from one before another strikes.
“There wasn’t one air intervals between these shocks. If you are thinking about the covid supply chain shock we are now begin see evidence in terms of commodity prices of it’s starting to come off which has been replaced by this huge shock we’re getting in terms of energy prices arising from the actions that Russia is taking,” he said.
Pay and price rises
Wave after wave of global shocks take their toll on businesses that make their way price rises.
As a result, the workers are looking for higher to pay. It can protect them against inflation, but also threatens to infiltrate price rises throughout economy. Higher wages are usually drive higher prices, at the risk of earning such fearful wages.price spiral.
“There have been some signs that inflationary pressures are becoming more resistant and expanding to more sectors focused on the domestic market,” the MPC said in a statement. in his minutes.
“Companies are finding easier raise prices and labor market remains tight. In such an environment risk what the further jump in energy prices and higher as well as more protracted path for CPI inflation over in next 18 months, will lead to more sustainable internal price and pressure on wages.
This is the main threat against which the Bank operates with it’s drastic rise in interest rates.
“If we do not act, inflation will become more built-in will get worse, and we will have to raise interest rates on moreMr Bailey said.