Inflation could hit 15% this winter as the Bank of England suggests it is considering steeper rate hikes to cool inflation
- The Bank of England can raise interest rates by 0.5 percent to offset inflation
- The bank is currently forecasting that inflation could reach 11 percent in the winter
- Economists have warned that this could reach 15 percent if Russia “turns off the taps”.
Inflation could soar to 15 percent this winter, economists have warned.
It comes after the Bank of England indicated it was considering steeper rate hikes to cool inflation, which hit a 40-year high of 9.4 percent last month.
If forecasts by consultancy to accounting giant EY are correct, it would bring the rate of inflation closer to the levels seen during the 1970s “Winter of Discontent”, when rising costs and wage disputes sparked strikes.
The forecasts are based on Russia shutting off gas to Europe in retaliation for sanctions and continued food price hikes as Ukraine’s grain exports remain disrupted. EY’s Mats Persson told the Sunday Times that companies are now modeling inflation to peak at 15 per cent in the winter when Russia “turns off the taps”.
The Bank of England has indicated it is considering a big rate hike to offset skyrocketing inflation, which it believes could reach 11 percent (pictured Bank of England Governor Andrew Bailey).
Accounting firm EY has predicted that inflation could reach 15 percent if Russia shuts off gas supplies to Europe (pictured: pipes and pressure gauges for gas pipelines in Europe).
The forecasts also included predictions of a continued rise in food prices as grain exports from Ukraine continue to be disrupted following Russian missile attacks on the Black Sea port of Odessa.
Mr Persson added that companies need to think about getting creative with employee pay arrangements, e.g. B. by offering more perks or profit-related pay increases to keep workers without driving up prices by increasing wages.
EY’s worst-case forecast is above the Bank of England’s current estimate, which expects inflation to hit 11 percent before the end of the year.
In a speech earlier this month, Gov. Andrew Bailey said a 0.5 percentage point rate hike was “on the table” when the bank’s monetary policy committee meets next week.
That would be the biggest hike since 1995 and would take interest rates to 1.75 percent, the highest since December 2008.
Soaring inflation, exacerbated by the war in Ukraine and problems in the global supply chain, has pushed up the cost of everything from meat, vegetables and coffee to household energy and gasoline.
High inflation has pushed up the prices of almost everything, raising fears that a lack of consumer spending could lead to a recession
The magnitude of the price hikes has forced many families to tighten their belts, raising fears that a lack of consumer spending could plunge the economy into recession.
Meanwhile, rising interest rates have pushed up mortgage costs for millions of homeowners.
UK interest payments on government debt also hit their highest level on record in June, as the Office for Budget Responsibility predicted payments will reach £87 billion this fiscal year.
Tackling inflation has been a key issue in the Tory leadership battle between former Chancellor Rishi Sunak and Foreign Secretary Liz Truss, with both candidates offering different approaches to try to revive the economy and stem rising prices.
Sunak said the UK “shouldn’t be complacent” on inflation and previously vowed to “get a handle on” price hikes before cutting taxes.
Truss, meanwhile, has outlined more immediate plans for £30billion in tax cuts, which she said will lower inflation and boost economic growth, although Patrick Minford, an economist linked to the Foreign Secretary, said it meant interest rates would have to rise to 7 percent.