Britain will fare worst in downturn, says Bank Governor

THE Bank of England Governor has warned that Britain faces a faster and steeper downturn than other rich countries as households are battered by a “very large national real income shock”.

Andrew Bailey said the UK economy is at a “turning point” after Covid, the energy price surge and the war in Ukraine combined to trigger spiralling inflation and the worst drop in disposable incomes for decades.

Opening the door to a bigger hike in interest rates to tame price pressures, he vowed to act “more forcefully” if painfully high inflation – forecast to hit 11 per cent in October – persists.

At a conference in Portugal, Mr Bailey said: “The UK economy is probably weakening rather earlier and somewhat more than others. I think that’s been somewhat evident now for a few months.” His comments came as retail industry chiefs warned of a looming plunge in consumer spending in a survey shared with The Daily Telegraph.

Stefano Pessina, the head of Boots owner Walgreens Boots Alliance, said the UK is heading for a worse crisis than other European countries.

Mr Pessina, whose company shelved plans to sell Boots because of market conditions this week, said: “The war in Ukraine doesn’t help with its impact on the cost of oil, gas and commodities further exacerbating the speculation around it. We will go into a recession.

“I suspect the UK will have a big recession, probably bigger than other European countries.”

The Bank of England has predicted the UK economy will shrink 0.3per cent in the second quarter of 2022 and contract again at the end of the year as the cost of living crisis deepens.

It is being battered by record low household confidence and a squeeze on incomes caused by the highest inflation in 40 years. In a panel session at the European Central Bank’s conference

in Sintra, Mr Bailey said: “We are being hit by a very large national real income shock.… it will reduce domestic demand and it will pass through into the labour market and it will pass through into inflation.”

Meanwhile, the Bank of England’s newest rate-setter, Swati Dhingra, said data suggest the UK’S slowdown is “much more imminent than we thought before”.

In written evidence to Parliament’s Treasury Committee, Ms Dhingra, a Brexit critic, said: “The UK has done worse than other G7 nations in terms of consumer confidence and inflation.”

She also told MPS that the Bank should take a “very gradual” approach to increasing interest rates and claimed that the UK’S exit from the EU has caused a 3pc increase in food prices.

The annual survey of retail chairmen by Korn Ferry, a consultant, revealed that 95pc expect a tumble in consumer spending as bosses struck a gloomy tone on the industry’s outlook.

Richard Pennycook, chairman of Howdens Joinery, said he is “pretty anxious” for the second half of 2022 as up to half of Britons “are going to see a real squeeze in their disposable incomes”.