The Bank of England is accused of ‘losing control of inflation’ as households face another £2,300 hit to their finances
- Economists have accused the Bank of England of failing to control of inflation
- Inflation will mean the typical household will be £2,300 worse off by May 2024
The Bank of England was yesterday accused of ‘losing control of inflation’ as a report warned that households are facing a £2,300 hit to their finances.
With the price of everyday essentials such as food still soaring, the cost of living squeeze is set to last another ten months, accountants Grant Thornton say today.
By the time the crunch finally comes to an end in May next year, the typical household will be £2,300 worse off, having seen prices rise faster than earnings for 31 months.
Richard Lim, chief executive of Retail Economics, which compiled the report with Grant Thornton, said: ‘The squeeze on finances has become a war of attrition for many households.
‘While peak inflation may have passed, households still have around ten months of pain to come where cutting back spending will intensify for many.’
The Bank of England was accused of ‘losing control of inflation’ as report warned households are currently facing a £2,300 hit to their finances
The report came as the Bank and its Governor Andrew Bailey faced fresh criticism over their handling of the economy.
Official figures yesterday showed wages in the three months to May were 7.3 per cent higher than a year earlier – the joint-biggest increase since records began in 2001.
But with inflation still running at 8.7 per cent – more than four times the Bank’s 2 per cent target – workers are still worse off.
The rise in pay fuelled fears of a so-called wage-price spiral that could leave high levels of inflation embedded in the economy for a prolonged period of time.
The Bank is now expected to press ahead with a string of further painful interest rate hikes in the coming months in a bid to bring inflation back under control.
That would push up the cost of mortgages for millions of households already feeling the pinch.
The Bank looks set to raise rates to 5.5 per cent next month having already hiked them from 0.1 per cent to 5 per cent since December 2021. Rates are then expected to reach 6.25 per cent by Christmas.
Mr Bailey this week admitted inflation remained ‘unacceptably high’ and Rishi Sunak yesterday said it is ‘proving to be more persistent than people thought’.
Wages have become a major focus for officials because salary rises put further pressure on businesses to hike their prices, thereby driving inflation even higher.
Bank of England Governor Andrew Bailey (pictured) this week admitted inflation remained ‘unacceptably high’
Economists yesterday accused Bank of England officials of failing to control inflation.
Andrew Sentance, a former member of the Bank’s Monetary Policy Committee, which sets interest rates, said with wages in the private sector rising by 7.7 per cent there was ‘no chance of hitting [the] 2 per cent inflation target in the next two years or more’.
Declaring that Mr Bailey and his team at the Bank are ‘not up to the job’, he added: ‘The rate of pay increase is about 5 percentage points above the level compatible with 2 per cent inflation. The Bank of England has lost control of inflation.’
Despite wages rising, the spiralling cost of food, energy and other daily expenses has cost UK households £50billion in lost disposable income so far as pay packets fail to keep up with shopping baskets, according to the Grant Thornton report.
Households are set to lose another £15billion of spending power in the coming ten months.
In total, inflation is forecast to wipe out £65billion from household incomes across the 31 months from October 2021 to May 2024, leaving each household £2,300 worse off by the end of it.
Only then will living standards start to rise again as earnings outpace inflation, the report warns.
Despite the pressure on household incomes, Mr Bailey and Chancellor Jeremy Hunt this week told the City there needs to be pay restraint if the UK is going to tame inflation.
It is not the first time the central bank or Government has sounded the alarm over pay.
Chancellor Jeremy Hunt this week told the City there needs to be pay restraint if the UK is going to tame inflation
In April, the Bank’s chief economist Huw Pill sparked a backlash after he said people need to accept they are poorer otherwise prices will continue to rise.
Union leaders yesterday called for the Government to stop ‘scapegoating workers’ over pay.
Mr Sunak said: ‘I know things are difficult for many families across the country. The UK is not alone in experiencing a rise in interest rates. The crucial thing that we have to do is bring inflation down.
‘That’s how we’re going to ease the burden for families. That’s how we’re going to stop the rise in interest rates. And that’s why my priority is to halve inflation.
‘Of course, that is proving to be more persistent than people thought, but that doesn’t mean the course of action is wrong. We’ve got to stick to it.’
Danni Hewson, head of financial analysis at AJ Bell, said: ‘No one can blame cash-strapped workers asking for a bit more in their pay packets so they can try and keep their living standards in the same ballpark they’ve become used to.’
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