BoE chief warns more interest rates hikes are coming after inflation shock

The Bank of England today warned of more interest rate hikes to come after inflation topped 11 per cent – and is set to remain there for months.

Governor Andrew Bailey told MPs that the UK labour market is still ‘tight’ and more increases in interest rates are ‘likely’ to try to get a grip on prices.

He also warned that Britain has not yet entirely shaken off the ‘risk premium’ on government borrowing that was built in by the markets following Liz Truss’s disastrous mini-Budget. 

The comments, during an appearance before the Treasury Select Committee, followed news that the headline CPI rate reached a new 41-year high of 11.1 per cent in October, up from 10.1 per cent the previous month and far above the 10.7 per cent analysts had expected. 

Soaring food and energy costs were the main drivers of the latest surge, with the Office for National Statistics estimating that the average UK household is now paying 88.9 per cent more for heating and lighting than a year ago.

Deputy governor Ben Broadbent told MPs this afternoon that CPI was likely to stay around this level for the next three months, while Mr Bailey stressed that food costs will dictate whether prices have peaked. 

Mr Broadbent also said there was no certainty about the length of the record-breaking recession the Bank predicted earlier this month.

‘The last two or three quarters of that projected decline in GDP (gross domestic product) are pretty small, so it wouldn’t take much of a tilt to shave a couple of quarters off the projected length of the recession,’ he said.

‘So, I would not stand squarely behind the length and say this will definitely happen, it could easily turn out to be a little bit shorter or a little bit longer,’ he said.

Chancellor Jeremy Hunt will deliver his Autumn Statement tomorrow against the grim backdrop of the economy going into reverse and parlous government finances.

He is set to increase the tax burden by more than £20billion a year and slash budgets by more than £30billion in a desperate bid to fill a black hole in the books.  

Mr Hunt said inflation was ‘thwarting any chance of long-term economic growth’, adding: ‘It is our duty to help the Bank of England in their mission to return inflation to target by acting responsibly with the nation’s finances.’

Speaking at the G20 summit in Bali, Rishi Sunak said dealing with the economic situation is his ‘number one priority’ the Chancellor will ‘get debt falling’ with his plan tomorrow. 

In more bad news for Britons, retailers warned ‘there are few signs the cost-of-living crisis will abate any time soon’ as they stepped up calls for help from the Chancellor. 

The British Chambers of Commerce (BCC) warned of a ‘lethal combination of recession and runaway inflation’ unless Mr Hunt acts.

Governor Andrew Bailey told MPs that the UK labour market is still ‘tight’ and more increases in interest rates are ‘likely’ to try to get a grip on prices

The headline CPI rate rose to a new 41-year high of 11.1 per cent in October, up from 10.1 per cent the previous month and far above the 10.7 per cent analysts had expected

Inflation in the UK has jumped to 11.1 per cent in October – far worse than predicted by experts

This chart shows how inflation is hitting pockets. By far the largest rises are in housing and household services, which includes energy bills. Food and booze is also going up fast Transport costs are the only one reducing at any significant rate – although diesel is rising again 

One consumer who did not complete an online shop four months ago were shocked when they stumbled on the basket and saw the revisions 

Other shoppers have taken to Twitter to share the dramatic price rises they have seen for items they regularly pick up 

ONS Chief Economist Grant Fitzner said: ‘Rising gas and electricity prices drove headline inflation to its highest level for over forty years, despite the Energy Price Guarantee. Over the past year, gas prices have climbed nearly 130 per cent while electricity has risen by around 66 per cent.

‘Increases across a range of food items also pushed up inflation. These were partially offset by motor fuels, where average petrol prices fell on the month, while the price for diesel rose taking the disparity in price between the two fuels to the highest on record.

‘There was further evidence that costs facing businesses are rising more slowly, driven by crude oil and petroleum prices.’

The Bank of England predicted earlier this month that inflation would peak at just below 11 per cent in October. 

It was revealed yesterday that wages rose at a record pace in the year to September – but are still being outpaced by the soaring cost of living.

Regular weekly pay jumped by an average of 5.7 per cent, the strongest rise outside of the pandemic period since records began in 2001, according to the Office for National Statistics.

But in real terms pay was falling by 3.7 per cent.

Appearing before the committee, Mr Bailey said Ms Truss’s mini-budget damaged the UK’s reputation abroad and the Bank must ‘tread carefully’.

‘We have damaged our reputation internationally because of what happened,’ Andrew Bailey told MPs on the Treasury Select Committee.

‘I was in Washington … at the IMF (International Monetary Fund) annual meeting, which is one of the biggest events of the year internationally. People were saying ‘ we didn’t think the UK would do this’.

On the prospects for more interest rate rises he observed: ‘It is still a very tight labour market, as yesterday’s labour market statistics demonstrated.’ 

‘It will take longer to rebuild that reputation than it will be to correct the gilt curve, so we have to tread carefully.’

Mr Hunt blamed the impact of the pandemic and Vladimir Putin’s war in Ukraine for the spike in prices as he warned that ‘tough’ decisions on tax and spending would be needed in Thursday’s autumn statement.

‘The aftershock of Covid and Putin’s invasion of Ukraine is driving up inflation in the UK and around the world,’ he said.

‘This insidious tax is eating into pay cheques, household budgets and savings, while thwarting any chance of long-term economic growth.

‘It is our duty to help the Bank of England in their mission to return inflation to target by acting responsibly with the nation’s finances. That requires some tough but necessary decisions on tax and spending to help balance the books.

‘We cannot have long-term, sustainable growth with high inflation. Tomorrow I will set out a plan to get debt falling, deliver stability, and drive down inflation while protecting the most vulnerable.’

Mr Sunak said inflation is the ‘enemy we need to face down’, arguing that over the summer people ‘got a glimpse’ of what can happen ‘if we don’t get these things right’.

‘My absolute number one priority is making sure that we deal with the economic situation that we face at home,’ he said.

‘With more news of inflation today, it’s the number one thing that’s on people’s minds.

‘It’s the thing that’s causing most anxiety, opening up bills, seeing the emails come in with rising prices. And that’s why it’s right that we grip it.’

Mr Sunak said tackling inflation ‘will help us cut the cost of things, it will limit the increase in mortgage rates’.

‘Once we have that stable foundation, which the Chancellor will provide tomorrow, I am confident we can move forward as a country and we can look forward to a brighter future and build on that foundation to provide jobs and opportunity and prosperity around the country,’ he said.

‘I want to limit the increase in mortgage rates because that’s also causing anxiety for millions of homeowners across the UK.

‘And given that we’re facing these global economic shocks, we are going to have to take some difficult decisions at home to protect ourselves against those, and to start getting a grip of inflation, reducing it and limiting the increase in mortgage rates.

‘So that’s why we’re doing what we’re going to have to do tomorrow.’

ONS figures show just how much the price of supermarket staples and food inflation has risen in October

Retailers have warned that the situation will get worse. 

Helen Dickinson, chief executive of the British Retail Consortium, said: ‘Many customers are keenly anticipating Black Friday deals and other promotions in the run up to Christmas, as they prepare to buy gifts and festive treats.

‘Unfortunately, there are few signs the cost of living crisis will abate any time soon.

‘Tomorrow, the Chancellor will unveil the autumn budget, where he has the opportunity to provide support for struggling households and relieve some of the costs on retailers and their suppliers, which in turn put pressure on prices.

‘Retailers face an £800million per year hike in business rates from April 2023, so urgent Government action is needed to mitigate this and prevent even higher inflation in the new year.’

British Chambers of Commerce  head of research David Bharier said: ‘While the Bank of England seeks to control inflation through further interest rate rises, this is a blunt instrument that fails to address the core drivers of inflation for most firms: soaring energy costs, global supply chain disruption, and rising staff costs due to labour shortages.

‘Ahead of tomorrow’s autumn statement, businesses will need to see a clear plan from the Chancellor to boost business investment and growth, as well as targeted measures that ease the specific causes of inflation.

‘The UK economy otherwise faces a lethal combination of recession and runaway inflation.’

Jack Leslie, senior economist at the Resolution Foundation think tank, said: ‘Everyone in Britain is affected by double digit inflation, which has caused pay packets to shrink at record rates.

Rishi Sunak (pictured left the G20 Summit in Bali) said Jeremy Hunt (left) would set out a plan to balance the books tomorrow 

It was revealed yesterday that wages rose at a record pace in the year to September – but are still being outpaced by the soaring cost of living

There were signs yesterday that the jobs market is cooling, but vacancies still outnumber those looking for work  

‘But some groups are more affected than others, and Britain now has a significant cost-of-living gap between rich and poor households.

‘Rising energy bills and rapid food prices mean that low-income households now face an effective average inflation rate of around 12.5 per cent, while in the cold winter months, the over-80s are already facing inflation rates of around 15.3 per cent.

‘This shows why the Chancellor needs to protect vulnerable households through the ongoing cost-of-living crisis when he sets out his autumn statement.’

However, Martin Beck, chief economic adviser to the EY Item Club, said he expects the worst to now be over for inflation.

He said: ‘The EY Item Club thinks inflation has now peaked. The prospect of changes to the Energy Price Guarantee (EPG) – due to be announced in tomorrow’s autumn statement – means that it is hard to forecast the precise path of inflation over the next year.

‘But, even in the unlikely event that the EPG were to be abandoned entirely, the contribution of energy prices would still fall back next year as large base effects come into play.

‘Falling commodity prices suggest that food price inflation should also be close to its peak, while weaker activity should begin to ease capacity constraints and cool core inflation.’

He added that interest rates are unlikely to rise as much as financial markets expect, ‘given a likely peak in inflation, the prospect of the Government announcing a large fiscal consolidation package, and that the economy appears headed for recession’.

He expects rates to rise from 3 per cent now to a peak of 4 per cent in early-2023, but said the Bank may halt hikes before then.

While private sector pay rose by 6.6 per cent, wages in the public sector – which includes doctors, nurses and civil servants – went up by only 2.2 per cent.

Real pay, which takes into account rising prices, was 2.7 per cent down on a year earlier.

Unemployment rose from 3.5 per cent to 3.9 per cent, or 1.28million.

The number classed as long-term sick was 2.5million – up more than 465,000 on the figure before the pandemic.

It comes as nurses, teachers and other public sector workers are all threatening to strike over pay deals which fall short of inflation.

Nurses have been offered an average increase of 4.75 per cent next year, but are arguing that they should receive more as their pay has failed to keep up with the rising cost of living for several years.

Prime Minister Rishi Sunak defended below-inflation pay deals for NHS staff yesterday, saying the unions’ demands were ‘unaffordable’.

The Bank of England has forecast the longest recession in modern history, although provisional GDP figures last week were better than its predictions  

Mr Hunt is thought to be facing a huge upgrade in OBR borrowing forecasts when he unveils his Autumn Statement tomorrow

But he also urged private companies to rein in their executive pay, which often hits millions of pounds for top chief executives, in an effort to keep a lid on inflation.

He told GB News: ‘We’re going to be asking everyone to contribute more. But we’ll be asking people who have more to contribute even more.’

Chancellor Jeremy Hunt said: ‘I appreciate that people’s hard-earned money isn’t going as far as it should.’

Speaking as he prepares to unveil his Autumn Statement tomorrow (THU), setting out plans to repair the hole in the public finances, he added: ‘Tackling inflation is my absolute priority and that guides the difficult decisions on tax and spending we will make on Thursday.

‘Restoring stability and getting debt falling is our only option to reduce inflation and limit interest rate rises.’

But Mr Hunt blamed the red-hot rise in the cost of living on the conflict in Ukraine, which has pushed up the price of energy and vital commodities such as grain.

He said: ‘Putin’s illegal war has driven up inflation – a hidden and insidious tax that is eating into paychecks and savings.’

Crippling cost of inflation-ravaged Britain: Experts warn shopping for household staples will feel like buying ‘gold bullion’ with rampant inflation sending cost of eggs soaring by 22%, cheese 27% and milk 32% – while electricity rises by 65%

By Martin Robinson, Chief Reporter for MailOnline

Eggs, milk and cheese are now luxury items in the UK with hard up Britons feeling like they are ‘buying gold bullion’ when trying to pick up basics because money is so tight, experts told MailOnline today.

With inflation hitting 11.1% in October – the highest rate for 41 years – the extraordinary rise in the cost of living in the UK is laid bare with the price of staples such up by 48 per cent.

And to make matters worse, the cost of running a home is sky high. The Office for National Statistics (ONS) says there has been a 128.9% rise in the cost of gas, a 65.7% increase in price of electricity – driving up costs for families who are now paying an average of 88.9 per cent more for heating and lighting than a year ago. 

Joe Jackson, a consumer expert at DIYMoney, told MailOnline: ‘The cost of cheese, eggs, milk and other staples has gone through the roof. Buying the basics for many households right now will feel like buying gold bullion. Even making simple meals like a cheese and ham omelette is now stretching many people’s finances to the limit. For millions of people, what were once staples in larders around the UK have become luxuries. It’s an extremely challenging time, especially for the lowest earners, who are being hit disproportionately hard by the current level of inflation’. 

Josie Barlow, manager at Bradford Foodbank, said: ‘Someone who came in recently told me ‘buying milk is a luxury now’. So many people are struggling with bills and food prices’.

Millions are now routinely paying 20p more for two pints of milk, 30p more for a packet of pasta, 30p more for six free range eggs, 40p more for a block of mature cheddar and up to a £1 more for frozen foods such as chips or prawns than they did 12 months ago.

Today’s official inflation figures from the ONS show there is not a single type of food or drink that has not gone up in price in October as energy bills also soar. 

The highest rises were in dairy products, fats and oils. Skimmed and semi-skimmed milk rose by 47.9% last month while whole milk was up 32.6%. Eggs are now 22.3% more expensive. Margarine was up 42.1% – up 12% in a month – while butter is 29.7%, sunflower oil 33% and olive oil 28.3%. Eggs are while the cost of ready meals has increased by 20.3%.

Cereals and flour are up 28.1%, pasta up 34% – up from 22.7% a month ago – and a loaf of bread is up 15%. Frozen vegetables are up 23.7%, sauces and condiments 33.2% while jams, honey and marmalades are up 22.2%.

But in a sliver of good news, chocolate, wine and beer have seen the most modest increases of between 2% and 6%. However, mineral water is up 14% while coffee and tea were up between 11.5% and 7.7% respectively.

Experts believe that by the end of the year, the average family will have spent £4,960 in the supermarket in 2022 – £380 more than 2021. A recent poll revealed that 85% of people are ‘worried’ or ‘very worried’ about the rising cost of living – up from 69% in January.

According to the ONS the amount parents are paying for their children’s shoes has risen by 12.8%, the cost of a woman’s haircut has increased by 6.1% and women’s clothing has increased in cost by 8.2%, while household materials for DIY have gone up by 14.1%.

Britons face deepening misery before Christmas as shock figures today showed inflation topping 11 per cent – with experts warning of worse to come.

The headline CPI rate rose to a new 41-year high of 11.1 per cent in October, up from 10.1 per cent the previous month and far above the 10.7 per cent analysts had expected. 

Soaring food and energy costs were the main drivers of the latest surge, with the Office for National Statistics estimating that the average UK household is now paying 88.9 per cent more for heating and lighting than a year ago.

The Bank of England had predicted inflation would peak slightly below the current level – nearly six times its 2 per cent target – leaving it under huge pressure to ramp up interest rates again. In contrast, US producer price inflation came in below expectations yesterday.

The ONS suggested that without the Government subsidising energy bills this winter, CPI could have been as high as 13.8 per cent and experts warned the UK faces a ‘lethal combination’ of recession and soaring prices. 

Chancellor Jeremy Hunt made clear that he will take ‘tough but necessary decisions on tax and spending to help balance the books’ in the Autumn Statement tomorrow, calling inflation an ‘insidious tax is eating into pay cheques, household budgets and savings’.

He is set to increase the tax burden by more than £20billion a year and slash budgets by more than £30billion in a desperate bid to fill a black hole in the finances and appease nervous markets after the disastrous mini-Budget under Liz Truss.  

Mr Hunt said it was ‘thwarting any chance of long-term economic growth’, adding: ‘It is our duty to help the Bank of England in their mission to return inflation to target by acting responsibly with the nation’s finances.’

Speaking at the G20 summit in Bali, Rishi Sunak said dealing with the economic situation is his ‘number one priority’ the Chancellor will ‘get debt falling’ with his plan tomorrow. 

In more bad news for Britons, retailers warned ‘there are few signs the cost-of-living crisis will abate any time soon’ as they stepped up calls for help from the Chancellor. 

The British Chambers of Commerce (BCC) warned of a ‘lethal combination of recession and runaway inflation’ unless Mr Hunt acts.

The headline CPI rate rose to a new 41-year high of 11.1 per cent in October, up from 10.1 per cent the previous month and far above the 10.7 per cent analysts had expected

Inflation in the UK has jumped to 11.1 per cent in October – far worse than predicted by experts

This chart shows how inflation is hitting pockets. By far the largest rises are in housing and household services, which includes energy bills. Food and booze is also going up fast Transport costs are the only one reducing at any significant rate – although diesel is rising again 

ONS Chief Economist Grant Fitzner said: ‘Rising gas and electricity prices drove headline inflation to its highest level for over forty years, despite the Energy Price Guarantee. Over the past year, gas prices have climbed nearly 130 per cent while electricity has risen by around 66 per cent.

‘Increases across a range of food items also pushed up inflation. These were partially offset by motor fuels, where average petrol prices fell on the month, while the price for diesel rose taking the disparity in price between the two fuels to the highest on record.

‘There was further evidence that costs facing businesses are rising more slowly, driven by crude oil and petroleum prices.’

Mr Hunt blamed the impact of the pandemic and Vladimir Putin’s war in Ukraine for the spike in prices as he warned that ‘tough’ decisions on tax and spending would be needed in Thursday’s autumn statement.

‘The aftershock of Covid and Putin’s invasion of Ukraine is driving up inflation in the UK and around the world,’ he said.

‘This insidious tax is eating into pay cheques, household budgets and savings, while thwarting any chance of long-term economic growth.

‘It is our duty to help the Bank of England in their mission to return inflation to target by acting responsibly with the nation’s finances. That requires some tough but necessary decisions on tax and spending to help balance the books.

‘We cannot have long-term, sustainable growth with high inflation. Tomorrow I will set out a plan to get debt falling, deliver stability, and drive down inflation while protecting the most vulnerable.’

Mr Sunak said: ‘My absolute number one priority is making sure that we deal with the economic situation that we face at home.

‘With more news of inflation today, it’s the number one thing that’s on people’s minds.

‘It’s the thing that’s causing most anxiety, opening up bills, seeing the emails come in with rising prices. And that’s why it’s right that we grip it.’

Mr Sunak said tackling inflation ‘will help us cut the cost of things, it will limit the increase in mortgage rates’.

‘Once we have that stable foundation, which the Chancellor will provide tomorrow, I am confident we can move forward as a country and we can look forward to a brighter future and build on that foundation to provide jobs and opportunity and prosperity around the country,’ he said.

Retailers have warned that the situation will get worse. 

Helen Dickinson, chief executive of the British Retail Consortium, said: ‘Many customers are keenly anticipating Black Friday deals and other promotions in the run up to Christmas, as they prepare to buy gifts and festive treats.

‘Unfortunately, there are few signs the cost of living crisis will abate any time soon.

‘Tomorrow, the Chancellor will unveil the autumn budget, where he has the opportunity to provide support for struggling households and relieve some of the costs on retailers and their suppliers, which in turn put pressure on prices.

‘Retailers face an £800million per year hike in business rates from April 2023, so urgent Government action is needed to mitigate this and prevent even higher inflation in the new year.’

Wages rose at a record pace in the year to September – but are still being outpaced by the soaring cost of living.

Regular weekly pay jumped by an average of 5.7 per cent, the strongest rise outside of the pandemic period since records began in 2001, according to the Office for National Statistics.

But with inflation at a 40-year high, most families are still left feeling the pinch.

British Chambers of Commerce  head of research David Bharier said: ‘While the Bank of England seeks to control inflation through further interest rate rises, this is a blunt instrument that fails to address the core drivers of inflation for most firms: soaring energy costs, global supply chain disruption, and rising staff costs due to labour shortages.

‘Ahead of tomorrow’s autumn statement, businesses will need to see a clear plan from the Chancellor to boost business investment and growth, as well as targeted measures that ease the specific causes of inflation.

‘The UK economy otherwise faces a lethal combination of recession and runaway inflation.’

Nurses (file photo) and other public sector workers are threatening to strike over pay deals which fall short of inflation

Rishi Sunak (pictured left the G20 Summit in Bali) said Jeremy Hunt (left) would set out a plan to balance the books tomorrow 

While private sector pay rose by 6.6 per cent, wages in the public sector – which includes doctors, nurses and civil servants – went up by only 2.2 per cent.

Real pay, which takes into account rising prices, was 2.7 per cent down on a year earlier.

Unemployment rose from 3.5 per cent to 3.9 per cent, or 1.28million.

The number classed as long-term sick was 2.5million – up more than 465,000 on the figure before the pandemic.

It comes as nurses, teachers and other public sector workers are all threatening to strike over pay deals which fall short of inflation.

Nurses have been offered an average increase of 4.75 per cent next year, but are arguing that they should receive more as their pay has failed to keep up with the rising cost of living for several years.

Prime Minister Rishi Sunak defended below-inflation pay deals for NHS staff yesterday, saying the unions’ demands were ‘unaffordable’.

But he also urged private companies to rein in their executive pay, which often hits millions of pounds for top chief executives, in an effort to keep a lid on inflation.

He told GB News: ‘We’re going to be asking everyone to contribute more. But we’ll be asking people who have more to contribute even more.’

Chancellor Jeremy Hunt said: ‘I appreciate that people’s hard-earned money isn’t going as far as it should.’

Speaking as he prepares to unveil his Autumn Statement tomorrow (THU), setting out plans to repair the hole in the public finances, he added: ‘Tackling inflation is my absolute priority and that guides the difficult decisions on tax and spending we will make on Thursday.

‘Restoring stability and getting debt falling is our only option to reduce inflation and limit interest rate rises.’

But Mr Hunt blamed the red-hot rise in the cost of living on the conflict in Ukraine, which has pushed up the price of energy and vital commodities such as grain.

He said: ‘Putin’s illegal war has driven up inflation – a hidden and insidious tax that is eating into paychecks and savings.’