The Bank of England (BoE) has warned the UK to expect higher inflation with falling incomes for businesses and homes as an economic storm is coming.
The BoE has blamed “volatile global markets” the supply chain due to the ongoing war in Ukraine which is pushing up food and energy prices.
The BoE report states, “Following Russia’s illegal invasion of Ukraine, global inflationary pressures have intensified sharply.
“This largely reflects steep rises in energy and other commodity prices that have exacerbated inflationary pressures arising from the pandemic, and further disruption of supply chains.
“Household real incomes and the profit margins of some businesses have fallen as a result.”
The Bank has warned that the economic outlook could get far worse which energy and food prices continuing to rise as there is no end in sight currently as to when the war will end.
It reads, “Developments related to the Russian invasion of Ukraine are a key factor that will affect both the global and UK outlooks, particularly if energy and food prices rise further.
“Stronger or more persistent inflationary pressures than currently expected might lead to: weaker economic growth globally; a further sharp tightening in global financial conditions; and the potential for further volatility and stress in financial markets.”
This will most likely “increase the pressures” amid the spiralling cost of living which has already gripped households and businesses, however it also stated that the UK’s banking sector “remains strong.”
It said, “Setting lending terms to reflect the new risk environment is appropriate. Restricting lending solely to defend capital ratios or capital buffers would be counterproductive and could prevent credit-worthy businesses and households from accessing funding.
“Such excessive tightening would harm the broader economy and ultimately the banks themselves.”
ITV’s political editor Robert Preston said on Twitter: “The Bank of England is warning of a material deterioration in the economy and risks to banks. It wants banks to continue to fund creditworthy businesses and individuals, but acknowledges the risk that they will worsen the downturn by reining in credit.”
The BoE report comes as Sainbury’s chief executive Simon Roberts warned in June that food prices will get worse before it gets better and customers are facing the “toughest of times.”
Roberts said, “We really understand how hard it is for millions of households right now and that’s why we are investing £500m and doing everything we can to keep our prices low, especially on the products customers buy most often.”
“The pressure on household budgets will only intensify over the remainder of the year and I am very clear that doing the right thing for our customers and colleagues will remain at the very top of our agenda.”
Roberts added, “The effects of this are going to last longer than I am sure most people expected months ago.
“The price of food, fuel, fertiliser and labour have all gone up. We are seeing substantial cost impacts and they are not going to go away tomorrow.
“Households up and down the country are facing real challenges.
“It is challenging for customers and challenging for households trying to manage their budgets.”
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