High inflation could last for ‘years rather than months’, warns economist

Cost of living squeeze in Britain may could be bigger and last longer than expected, economists have warned citing the combined effects of economic shocks from Brexit, Covid and Russia’s war in Ukraine. Meanwhile, prime minister Boris Johnson warned today (10) that the government cannot “completely shield” people from the rising cost of living.

According to Michael Saunders, a member of the Bank of England’s rate-setting monetary policy committee (MPC), inflation was “uncomfortably high” as households come under pressure from soaring energy, food and fuel bills.

“Energy price squeezes are painful. They hit those on the lowest incomes worst,” he said.

Saunders’ warning was echoed by Andy Haldane, the Bank’s former chief economist who now leads the Royal Society for Arts thinktank, who said high rates of inflation could stick around for “years rather than months”.

Saunders, who alongside two other members of the nine-strong MPC was in the minority calling for a tougher 0.5 percentage point rate rise, said it would be better to ramp up borrowing costs more aggressively now to stop persistently high rates of inflation in future.

Johnson, meanwhile, came under fire today (10) for failing to include immediate extra help for households facing spiralling costs, with inflation set to hit a 40-year high later in 2022.

The warning by economists comes after the Bank of England’s prediction that inflation will peak at just over 10 per cent in the final months of this year, driven by the cap on energy bills rising 40 per cent in October to account for elevated wholesale gas prices caused by the war in Ukraine.