The Governor of the Bank of England has warned of “apocalyptic” global food price rises and said he is “helpless” in the face of surging inflation as the economy is battered by the war in Ukraine.
Andrew Bailey said he has “run out of horsemen” when counting the shocks facing Britain, with runaway energy and food costs driven by global market forces beyond his control.
Prices are rising at the fastest rate in 30 years, creating a “very big income shock” that is expected to intensify in coming months with a risk of double-digit inflation before the end of the year.
Mr Bailey told MPs on the Treasury Select Committee that he is increasingly concerned about a further surge in food costs if Ukraine, a major crop grower, is unable to ship wheat and cooking oils from its warehouses because of a Russian blockade.
The Governor said that he had spoken to Ukraine’s finance minister and added: “The [risk] I’m going to sound rather apocalyptic about I guess is food.
“Ukraine does have food in store but it can’t get it out at the moment. While [the finance minister] was optimistic about crop planting, he said at the moment we have no way of shipping it out as things stand, and it is getting worse.
“That is a major worry. It is not just a major worry for this country, it is a major worry for the developing world.
“I am by no stretch of the imagination a military strategist, but whatever can be done to help Ukraine get its food out would be a huge contribution.”
The comments from Mr Bailey are likely to increase pressure on the Bank from Conservative MPs who are increasingly exasperated that he failed to act sooner.
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Many experts believe the institution acted too slowly in increasing interest rates as prices took off last year, and it has also been criticised for failing to reduce its quantitative easing money-printing programme over the past decade.
The bleak assessment will also likely add to pressure on the Treasury to hold an emergency Budget to tackle the cost of living crisis, after Rishi Sunak, the Chancellor, chose to raise taxes at the same times as incomes were being squeezed.
Food prices are already surging because of fears about the disruption. Ukraine supplies large parts of the Middle East with grain, and there is a risk that families will be unable to afford to eat unless a solution is found. Wheat prices rose as much as 6pc on Monday.
The Governor also admitted that the Bank has little hope of bringing inflation back to its 2pc target, with prices already climbing by 7pc and a further surge expected in the coming months.
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Asked by MPs on the Treasury Select Committee if he felt “helpless” to control inflation, Mr Bailey said: “Yes.”
He said: “It is a very very, more than uncomfortable – I am trying to think of a word that is even more severe than that – it is a very very difficult place to be.
“To forecast 10pc inflation and to say there is not a lot we can do about 80pc of it, I can tell you it is an extremely difficult place to be. We have to recognise the reality of the situation we face.”
Traditional policy requires the Bank to raise interest rates to combat high inflation, which works by raising borrowing costs and slowing the domestic economy. But most price rises currently are coming from global markets, so this would have little effect in the short run.
Instead the Bank has only increased rates from 0.1pc in December to 1pc now in the hope of stopping these cost increases feeding into the wider economy.
Once the energy price shock has passed it hopes inflation will fall back to 2pc.
So far the biggest impact on the UK has come through soaring gas bills and higher petrol prices, which could worsen depending on the supply of fossil fuels from Russia.
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The series of shocks to inflation are so severe that a Cabinet minister criticised the Bank over the weekend for failing in its “one job – to keep inflation at around 2pc”.
Another cabinet minister told The Telegraph that Government figures are “now questioning its independence”.
Mr Bailey hit back that the Bank’s independence and the trust placed in it to bring inflation back down are vital at a time of rampant price rises.
He said: “This is the biggest test of the monetary policy framework that we have had in its 25 years.
“What I would say to these people is, this is when the independence of the Bank and the target framework and the nominal anchor matter more than ever – more than in the easy times.”
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He implied that he would be prepared to raise rates to control inflation even if that led to a recession, saying: “We have to get [inflation] back to target. And that is clear.”
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Mr Bailey suggested that he does not expect higher rates to trigger a house price crash, arguing that growth is likely to cool as the crisis bites but a “structural” shortage of properties will prevent a plunge.
Sir Dave Ramsden, a deputy governor at the Bank, said that it was hard to disentangle the impact that a post-Brexit labour shortage has had on inflation, given that data suggests the European Union and US are both dealing with similar price surges and many countries are suffering more than the UK. Mr Bailey added that he still believes Brexit will have a negative impact on trade over the longer term.
Meanwhile, the Confederation of British Industry called on the Chancellor to step in with extra help for poor households and for struggling companies.
Tony Danker, the business group’s director general said it is crucial “to help people facing real hardship now; it’s the moral underpinning of our economy and society”.
“Putting pounds in the pockets of people struggling the most should not be delayed,” he said, adding that it is also vital to “start stimulating business investment now”, potentially by extending the Recovery Loan Scheme to help businesses get back on track after the pandemic and now the energy price shock. [Telegraph]
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I see gallows across America in every town and city, with lines of politicians and anyone who helped them being led at gun point to be hanged. This is what I see when I focus on the end. I also see them chased through the streets with no place safe to go and they are terrified. Justice that is will come to pass will be the peoples justice in the streets. For that is the only justice that is left now.
Attention the slug resents your comparison.
If we run out of diesel everything will come to a standstill. The Bible tells us that “a loaf of bread will cost a days wages”, see Revelation 6,6!
We are living in the end times, the rapture and the 7year Tribulation with the world leader (Antichrist, 666) are right around the corner! Please get saved – get rapture ready: accept JESUS CHRIST as your Lord and Savior today!!! JESUS is GOD, see John 1! Study biblical end times prophecy, listen to Dr. Ron Rhodes on end times chronology.
“Damn you, PUTIN!!!” These idiots really expect us to believe that everything is going to hell because of Mad Vlad and Ukraine. Well, after a few generations in public schools, the general populace has the amassed IQ of a banana slug.
Attention the slug resents your comparison.
ATMS are not in full of cash any more due to threat of riots in the world. If you want cash get it now before hot hot summer of riots which happening in Iran, Siri Lanka , Latin countries and middle east
so get your cash now before is too late.
Western civilization once thrived with a get it done attitude. Now everything is impossible. Amazing people keep putting up with governmental and big business figures that hide their evil deeds behind a veil of incompetence. Amazing.
I know it irks me to no end.They don’t want to admit their failures.There tinkering has helped spread the misery this is quite obvious.
Time to arrest Josef Bitme, Poop’n, and Xi and their goons for crimes against humanity.
Yep.