Andrew Bailey said there was evidence of a slowdown in consumer and business demand, as they came under increasing pressure to squeeze in the cost of living, with rising prices for gas, electricity and other goods and services. “The shock to energy prices this year will be greater than any other year in the 1970s,” he said at an event hosted by thinktank Bruegel in Brussels on Monday. “The warning is that the 1970s have been a number of years and we very much hope it will not happen now. “But as a year, this is a very, very big shock.” Threadneedle Street said earlier this month that inflation could reach 8% this spring after a sharp rise in household gas and electricity bills due on Friday. As inflation soared before Russia’s invasion of Ukraine, he said global energy prices pushed higher by the war could push inflation in the UK closer to 10% later this year. The central bank reacted by raising interest rates, which are now at 0.75% after rising 0.25 points at its policy meeting in March, as it raised concerns about high inflation before the impact on economic growth to stop current period of rising prices from become more persistent in the future. The Bank aims to reduce inflation to close to 2%. Bailey suggested Monday that squeezing the cost of living is likely to hit the UK’s economic growth rate as households and companies tighten their grip on rising energy and other goods and services. “We expect it to drive growth and slow demand. “We are beginning to see evidence of this in both consumer and business surveys,” he said, noting that weaker growth rates could lead to a cooling of inflation without the need for significant central bank interest rate hikes. “We expect that this pressure on demand will put pressure on domestically produced inflation. That is why we expect inflation to return to target in about two years from now. “ The Office for Budget Responsibility, the government’s financial forecaster, last week downgraded its 2022 growth forecast from 6% to 3.8%, warning that higher inflation in four decades would hit consumer demand. . Subscribe to the daily Business Today email or follow the Guardian Business on Twitter at @BusinessDesk Analysts expect the Bank of England monetary policy committee to raise interest rates to 1% at its next meeting in early May. While financial markets point to a rise in the key interest rate to 2% by the end of the year, some economists have suggested a weaker growth outlook would reduce the need for such a sharp rise in borrowing costs. Bailey said there were “risks to the inflation outlook on both sides”, given the high degree of uncertainty facing the UK economy. “We have a pandemic followed by a European war, on any scale that is a very difficult position for politics.”
