Cost of living squeeze to continue for ‘two years’

The current cost-of-living squeeze affecting Britons will continue for two years, the governor of the Bank of England has warned recently.

Andrew Bailey said inflation was not expected to return to normal levels until early 2024, with pay rise struggling to keep up.

“It is going to be a difficult period ahead, I readily admit, because we all get what we are already seeing and we’re going to see a reduction in real income,” Bailey told BBC Radio’s Today programme.

“Based on what we see today, I would expect that, so we’re going to start coming out of it in 2023, and two years from now we expect we’ll be back on to a more stable – certainly inflation – back to a more stable position.”

The Bank forecasts that inflation will hit 7.25 per cent in April.

With workers’ pay rises averaging below 5 per cent and taxes set to rise in April too, it means households here face the biggest fall in their real incomes since comparable records began 30 years ago.

Bailey reiterated his assertion that workers should show “restraint” when asking for salary increases.

The governor encouraged companies not to give staff big pay rises, warning it could lead to a spiral of higher prices being followed by higher wages, pushing inflation higher.

“We think that some of the bottlenecks around the world that have been causing disruption to the supply of goods and have been pushing prices up are starting to ease,” he said.

“We think there are good reasons to believe energy prices will start to ease, not least because they are somewhat seasonal. There are risks on both sides of that. It’s possible that energy prices will come down more rapidly because they’re so elevated at the moment.”

The primary driver of inflation in the past year has been higher energy prices, caused by constrained supply at a time of surging demand as the world emerges from the worst of the pandemic.