BANK CHIEF: FAMILIES ARE FACING FOOD PRICE APOCALYPSE
Governor admits he’s ‘helpless’ over inflation
FAMILIES face ‘apocalyptic’ food price rises, the Bank of England’s governor said yesterday.
Admitting that he felt ‘helpless’ over soaring inflation, Andrew Bailey told MPs a ‘very real income shock’ lay ahead, with energy prices also spiralling.
He warned that surging inflation – already the highest in 30 years – would hit household spending, causing unemployment to rise. Mr Bailey said Ukraine provided much of the world’s wheat but the war was crippling exports and pushing up prices.
Following criticism from Tory MPs over the Bank’s failure to keep a lid on prices, the governor said workers, especially high earners, should ‘reflect’ before asking for pay rises – in order to avoid further fuelling inflation.
His dire words came as:
■ Energy regulator Ofgem sparked fury with plans to change its price cap every three months, leaving homes facing hikes four times a year;
■ A minister suggested struggling workers should simply move to a ‘better-paid job’ or work more hours to help them cope with rising bills;
■ Investors endured a jittery day on the financial markets as figures from the European Commission and China stoked fears of a global recession;
■ A study revealed that the cost of living crisis has left half the UK with
worse health caused by cold, stress and poor food.
Inflation now stands at 7 per cent and the Bank of England believes it is likely to peak at 10.25 per cent during the final quarter of the year.
Appearing before the Commons Treasury committee, Mr Bailey said: ‘The main driver of inflation and what brings it down is the very big, real income shock which is coming from outside forces and, particularly, energy prices and global goods prices. That will have an impact on domestic demand and it will dampen activity and I’m afraid it looks like it will increase unemployment.’
He told the MPs that ‘we are walking a very narrow path’ between surging inflation and risks to growth. The war in Ukraine had resulted in an unpredictable jump in inflation, highlighting a ‘major worry’ over further rises in food prices.
The governor, who is paid £575,000 a year, added: ‘Ukraine and Russia is the big risk in a way. One is the risk of a further energy price shock, which would come from the cutting off of gas and distillates, such as products like diesel. And then, the one which I might sound rather apocalyptic about, is food.
‘The Ukrainian finance minister said that there is food in store but they can’t get it out. While he was optimistic about crop planting, as a major supplier of wheat and cooking oil, he said we have no way of shipping it out and that is getting worse.
‘It is a major worry for this country and a major worry for the developing world. Sorry for being apocalyptic but that is a major concern.’
In a plea to the Government, he said the UK should do whatever it could to get food out of Ukraine.
On Sunday, Business Secretary Kwasi Kwarteng claimed it was clearly ‘an issue’ that the Bank was failing to meet its inflation target.
Asked by committee chairman Mel Stride, a Tory MP, whether he had been ‘asleep at the wheel’, Mr Bailey said decisions were based on ‘evidence at the time’ and criticism from Tory MPs was based on ‘hindsight’. He insisted he did not think the Bank ‘could have done anything differently’ to avoid sharp price rises.
‘There have been a series of supply shocks, most recently with the impact of the war – Russia’s invasion of Ukraine,’ he said. ‘We can’t predict things like wars.’
Mr Bailey was asked by Tory MP Gareth Davies if he had felt ‘a bit helpless’ over the past months as inflation had surged past the Bank’s 2 per cent target.
He replied: ‘Yes. It is more than uncomfortable ... to predict and forecast 10 per cent inflation and say there’s not a lot we can do about 80 per cent of it is extremely difficult.’
Michael Saunders, who sits on the Bank’s monetary policy committee, said he believed tighter monetary policy would have done little to alter the runaway rate of inflation.
Answering a question about salaries, Mr Saunders said there was ‘no problem’ with having a high pay grade backed by higher productivity growth. But he added: ‘The issue which you have got at the moment, and you’ve had for the last couple of quarters, is generalised capacity pressures, strong underlying pay growth, and also firms believing they can pass those cost increases on.’
‘We are walking a very narrow path’
THE Bank of England’s spin doctors will probably claim that their governor, Andrew Bailey, came out swinging yesterday. But that would be wishful thinking.
Bailey is no barroom brawler. He prefers to tackle opponents in a more donnish way: A cocked eyebrow here, a delicately disguised put-down there.
Anyone who thinks this is a polite way of saying he’s a slightly dull old duck would be right.
If predecessor Mark Carney was central banking’s rock star, Bailey is more its owlish book-keeper, prone to meandering explanations and the dense terminology of international finance.
In other words, not one of life’s cartwheelers. Mr Bailey – whose lack of a knighthood may soon begin to look conspicuous – had been summoned to appear in front of the Treasury select committee to be quizzed about ‘Bank of England Monetary Policy’.
Top of the agenda was surging inflation, which is set to hit 10 per cent. Some in Government are laying the blame squarely at Bailey’s doorstep. There are reports that ministers are not altogether enamoured by his tenure of Threadneedle Street. ‘The Governor’ (as he was repeatedly referred to as though a character from a Guy Ritchie film) admitted he was ‘not at all happy’ about the inflation situation himself.
He uttered this in a slightly casual fashion – the way that a diner might complain to a breakfast waiter that his boiled egg could have done with a minute or two longer. Committee chairman Mel Stride (Con, C Devon) put it to Bailey that he’d been asleep at the wheel. Bailey lowered his head and suggested that his critics were a bunch of opportunistic snakes. Not that he put it quite so bluntly. No, no, no. Every decision he had made as Governor had been based on ‘facts and evidence at the time’, he said. Criticism of him was simply ‘based on hindsight’.
The problem was a ‘sequence’ of external factors, the most significant being the war in Ukraine.
‘We can’t predict things like war, that’s not really in our power,’ he remarked a tad archly.
Accompanying the Governor were Deputy Governor Sir Dave Ramsden plus Jonathan Haskel and Michael Saunders of the Monetary Policy Committee. Mr Saunders is your archetypal Wall Street yuppie in appearance. Bouffant hair. Impressive suntan. I notice he once worked at megabucks Noo York investment bank, Salomon Brothers (now defunct). No doubt he was one of those ‘Masters of the Universe’ that writer Tom Wolfe warned us about.
S IR Dave, a former Treasury wonk, sat respectfully nodding along whenever Bailey spoke. If the boss seemed to be flagging, he would helpfully chip in with supportive comments. A shining example of the mandarin class.
Things turned pretty gloomy when Gareth Davies (Con, Grantham) began asking about the Bank’s projections. Bailey predicted we were in for ‘very real income shock’. He warned of further energy shocks. Food prices were also likely to go north rapidly. Oh brother. The Governor admitted he ‘felt a bit helpless’. He claimed around 80 per cent of the factors driving inflation were beyond his control. Again, the main problem was Ukraine. He recounted a recent meeting with Ukraine’s finance minister, who relayed to him how they were currently unable to export any of their wheat supplies.
Bailey described this as a ‘major worry’ for the developing world. ‘Sorry to be all apocalyptic,’ he shrugged. This was becoming rather more depressing than even a Ken Loach movie.
Rushanara Ali (Lab, Bethnal Green and Bow) probed Bailey about rising pay levels in the City.
The Governor took this as an opportunity to remind the committee he’d declined a raise this year.
You may recall he got himself in terrible shtuck last time he appeared here when he couldn’t remember exactly what he earned (currently £575,538). Ali then raised those claims about ministers being unhappy with his performance. Bailey suggested such chit-chat was beneath him. ‘I don’t live in a world of anyone’s politics,’ he spluttered.
I think this was his roundabout way of saying: ‘I really don’t care what you ruddy politicians think of me.’ But he must be aware of the reports? ‘Yes, I do read newspapers,’ came the tart response.
Bailey might be a hard-faced central banker but I detect a little
fragility there.