Energy crisis to see inflation hit 10-yr high

ROCKETING energy costs will drive inflation to higher-than-expected levels – and they are already beginning to hamper Britain’s economic recovery, the Bank of England has said.

Finance chiefs predicted that by the end of the year the consumer prices index will top four per cent – a ten-year high – and said it could remain above that level into the second quarter of 2022.

The Bank stuck by forecasts that the leap in inflation – currently running at 3.2 per cent – would be temporary. And all nine members of its Monetary Policy Committee voted to hold interest rates at a record low 0.1 per cent.

But Hinesh Patel, a portfolio manager at Quilter Investors, said rising prices will ‘no doubt be of major concern’ to governor Andrew Bailey (pictured).

‘Ultimately what is flowing through the system right now is ‘bad inflation,’ he said.

‘Price rises are hitting the most vulnerable households, alongside the impacts of furlough on unemployment uncertainty.’ Deputy Bank governor Dave Ramsden and economist Michael Saunders called for a £35billion cut to the Bank’s £895billion bond-buying support for the postCovid recovery. But they were outvoted 7-2 at the MPC’s latest meeting.

The minutes also show that the Bank believes developments over the past month have ‘strengthened’ the case for tightening monetary policy in order to meet its two per cent inflation target. But bosses acknowledged that ‘considerable uncertainties remain’.

The Bank forecast growth in the third quarter would be one per cent weaker than estimated last month. That would leave gross domestic product around 2.5 per cent below its preCovid level.