... and economists sound alarm over risk of inf lation soaring to 8 per cent

FAMILIES face an inflation spike that will squeeze their finances and could even derail Britain’s economic recovery, experts warned yesterday.

As the price of energy bills and everyday essentials soar, the Bank of England’s chief economist said the UK is set for a longer and larger rise in living costs than previously feared.

And leading City analyst Mohamed El-Erian, president of Queens’ College, Cambridge, warned inflation was heading to levels not seen for 30 years. That could take it from its current rate of 3.2 per cent to over 8 per cent – which was last reached in 1991.

The warnings came just days after Boris Johnson insisted inflation was not spiralling out of control, saying cost pressures were the stresses you’d expect from ‘a giant waking up’.

However, an inflation spike would send shockwaves through the economy, piling pressure on family finances as price rises erode savings and wages. Such a spike could also trigger a string of interest rate hikes as the Bank of England battles to put a lid on inflation.

But it is feared any such move would further dent the economy by driving up the cost of borrowing for already struggling households and businesses.

In his first public comments since taking over as chief economist at the Bank of England last month, Huw Pill warned inflation would remain above 4 per cent well into next year.

‘The magnitude and duration of the transient inflation spike is proving greater than expected,’ he told MPs on the Treasury committee. Referencing the ‘pingdemic’ and HGV driver shortage, the former Goldman Sachs banker added that the country was being gripped by an ‘adverse supply shortage’. And he warned: ‘The rise in wholesale gas prices threatens to raise retail energy costs next year, sustaining inflation rates above 4 per cent into 2022.’

In separate comments, Mr El-Erian agreed that inflation would ‘continue going up’ to over 4 per cent – and suggested it could go even higher.

He told Radio 4: ‘No one is saying we are going to go back to the really, really ugly days of the Seventies where we had double-digit inflation. But we may be looking at inflation that is higher than we have seen for some 30 years and we are not sure how the system is going to cope.’

Business chiefs yesterday said they were already feeling the pressure with Paul Fecher, of toilet paper maker Northwood Group, warning they faced ‘a perfect storm’.