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Inflation WILL hit Britons hard this winter and families will be almost 2% worse off by next year

Britons are already seeing inflation ‘biting’ into their household incomes and will continue to be hit hard this winter, the Bank of England governor said today – as forecasts suggested families will be almost two per cent worse off by 2023. 

Andrew Bailey said he was ‘very sorry’ about the situation as he warned higher energy prices could become permanent due to the switch away from coal to tackle climate change.  

‘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 BBC Radio 4’s Today programme.

‘I’m very sorry that’s happening. None of us want to see that happen.’

Wholesale oil and gas prices have risen substantially during 2021, as shown in this graph from the Bank

This graph shows how energy prices are projected by the Bank to account for a large part of the near¿term pickup in inflation

This graph shows how energy prices are projected by the Bank to account for a large part of the near‑term pickup in inflation

World food prices hit new 10-year high 

World food prices rose for a third straight month in October to reach a fresh 10-year peak, led again by increases in cereals and vegetable oils, the UN food agency has revealed.

The Food and Agriculture Organization’s (FAO) food price index, which tracks international prices of the most globally traded food commodities, averaged 133.2 points last month compared with a revised 129.2 for September.

The September figure was previously given as 130.0.

The October reading was the highest for the index since July 2011. On a year-on-year basis, the index was up 31.3% in October.

Agricultural commodity prices have risen steeply in the past year, driven by harvest setbacks and strong demand. read more

The FAO’s cereal price index rose by 3.2% in October from the previous month. That was led by a 5% jump in wheat prices, which climbed for a fifth consecutive month to reach their highest since November 2012, FAO said. 

Mr Bailey predicted the cost of energy – particularly gas – was the main factor behind inflation and said prices could stay at a higher level due to the global switch to net zero.  

‘It is reasonable and necessary to think that we might transition from more polluting hydrocarbons to less polluting hydrocarbons until eventually let’s hope we emerge in a much more complete renewable economy,’ he said. 

‘So it is possible that some of what we’ve seen with gas prices is already climate change having effect if there’s a switch out of coal. 

‘Then part of it would be permanent higher prices, not higher inflation but a level change in prices.’

The cost of gas has risen by as much as 400% in the past year. 

The Banks Monetary Policy Committee released forecasts about the estimated hit to household wealth that will come from rising inflation and taxes.

It suggested that the bulk of the hit in 2023 would come from tax rises as average weekly earnings keep pace with inflation.   

The gloomy forecast suggested the Bank does not believe energy prices will fall soon.  

Mr Bailey’s comments coincided with new data which showed the average UK house price hit a record high of £270,027 in October.

The average property value grew by 0.9% in October – showing an increase of more than £2,500 during the month, Halifax said.

Yesterday, the Bank of England’s latest Monetary Policy Committee report said inflation as judged by the Consumer Price Index has already ‘risen markedly’ to more than 3 per cent amid supply chain ‘bottlenecks’ and soaring energy prices. 

The Bank also released this graph showing its gross domestic product projection based on market interest rate expectations

The Bank also released this graph showing its gross domestic product projection based on market interest rate expectations

The Bank of England produced this graph showing its CPI inflation projection based on market interest rate expectations

The Bank of England produced this graph showing its CPI inflation projection based on market interest rate expectations

The MPC believes inflation will still be ‘a little’ above its 2 per cent target in two years’ time – although it should dip lower after that.

The Bank shocked the markets by holding off on raising interest rates, but at a press conference governor Mr Bailey made clear that that will happen in the coming months.

He pointed to ‘near-term uncertainties’ over the prospects for the economy, highlighting the impact of the furlough scheme ending and energy prices as two grey areas.

The Bank struck a considerably gloomier tone on UK plc’s prospects than before, downgrading growth estimates for this year to 7 per cent from 7.25 per cent, and from 6 per cent to 5 per cent next year.

Today, Halifax put average house prices at around £20,000 higher than a separate index run by Nationwide Building Society, with studies using different methods to track average prices.

Earlier this week, Nationwide said that the average UK house price had hit a new record for its index of £250,311.

Andrew Bailey (seen yesterday) said he was 'very sorry' about rising inflation, which would 'bite into' household incomes

Andrew Bailey (seen yesterday) said he was ‘very sorry’ about rising inflation, which would ‘bite into’ household incomes 

Wales remains the strongest performer across the UK, with annual house price inflation of 12.9%, according to Halifax’s index.

Russell Galley, managing director of Halifax, said: ‘With prices rising for a fourth straight month, the annual rate of inflation now sits at 8.1%, its highest level since June.

‘One of the key drivers of activity in the housing market over the past 18 months has been the race for space, with buyers seeking larger properties, often further from urban centres.

‘Combined with temporary measures such as the cut to stamp duty, this has helped push the average property price up to an all-time high of £270,027.

‘Since April 2020, the first full month of lockdown, the value of the average property has soared by £31,516 (13.2%).’

He said that first-time buyers, supported by parental deposits, have improved mortgage access and low borrowing costs have also helped to drive price growth in recent months.

Mr Bailey said: 'It is possible that some of what we've seen with gas prices is already climate change having effect if there's a switch out of coal'

Mr Bailey said: ‘It is possible that some of what we’ve seen with gas prices is already climate change having effect if there’s a switch out of coal’

Mr Galley said: ‘First-time buyer annual house price inflation (9.2%) is now at a five-month high, and has pushed ahead of the equivalent measure for home movers (8.1%).

‘More generally the performance of the economy continues to provide a benign backdrop to housing market activity. The labour market has outperformed expectations through to the end of furlough, with the number of vacancies high and rising relative to the numbers of unemployed.

‘With the Bank of England expected to react to building inflation risks by raising rates as soon as next month, and further such rises predicted over the next 12 months, we do expect house buying demand to cool in the months ahead as borrowing costs increase.

‘That said, borrowing costs will still be low by historical standards, and raising a deposit is likely to remain the primary obstacle for many. The impact on property prices may also be tempered by the continued limited supply of properties available on the market.’


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