Families are already seeing inflation ‘biting’ into household budgets, says Bank of England chief

Andrew Bailey’s comments follow the Bank’s warning an interest rate rise is likely in the ‘coming months’

Bank of England Governor Andrew Bailey

PA Wire

Nicholas Cecil, Political Editor @nicholascecil5 November 2021

Families across Britain are already seeing inflation “biting” into their household budgets, the Governor of the Bank of England said on Friday.

Andrew Bailey also warned the pinch was going to get more painful this winter and further into next year as inflation is set to head as high as five per cent.

“Inflation is clearly something that bites on people’s household income. I’m sure they’re already feeling that in terms of prices that are going up,” he told the BBC.

The governor added: “I’m very sorry that’s happening.

“None of us want to see that happen.”

He added that prices could stay at a higher level due to the global switch away from “more damaging hydrocarbons”, such as coal, towards other energy sources such as gas as part of efforts to tackle global warming.

Many workers are getting pay rises but with CPI inflation at 3.1 per cent in September, many of them will already be getting a real terms wage cut if their extra income is outstripped by the rise in prices.

The Bank on Thursday backed away from an immediate interest rate rise despite soaring inflation, but said a hike is likely in the “coming months” to cool price rises.

It warned higher energy prices would see inflation leap from 3.1 per cent to 4.5 per cent by November and hit around five per cent next April, the highest level for a decade.

Members of the nine-strong Monetary Policy Committee voted seven to two in favour of keeping rates unchanged at 0.1 per cent, according to the meeting’s minutes.

Two members were outvoted in calling for a rise to 0.25 per cent.

The Bank also dramatically cut its growth forecast for the third quarter to 1.5 per cent from 2.1 per cent predicted in September.

This would mark a steep drop from the 5.5 per cent growth notched up between April and June.

It forecast growth would ease back further to one per cent in the fourth quarter, leaving overall expansion at seven per cent in 2021 against the 7.25 per cent predicted in August.

Mr Bailey admitted on Thursday that the Bank “can do little to affect inflation in the near term” as it was being pushed higher by global forces such as higher gas prices.

But he believes spiking inflation will be “temporary” and will “fall back materially from the second half of next year”.