Price rises will not slow as quickly as expected due to soaring food costs, the Bank of England has warned.
The Bank forecast comes as it increased interest rates to 4.5 per cent from 4.25 per cent, taking borrowing costs to their highest since 2008 with its 12th consecutive rate rise, as it seeks to curb the fastest inflation of any major economy.
It said inflation would “fall sharply in April” but not as far or as fast as it previously thought.
“It’s taking longer for food price [falls] to come through,” Bank boss Andrew Bailey told the BBC.
“Energy is quite a big element in the cost of food production and that’s certainly had an effect in this crisis. Often producers have bought forward (supplies) at high prices because they were concerned about whether they were going to get the things they needed.
“But, as we said before, we are in very unusual times.”
But Bailey was more optimistic on how quickly the UK economy would grow, saying it would now avoid recession.
He said grocers had told him that they expected food inflation to “come down quite rapidly” throughout the rest of the year. He added how higher energy prices and the war in Ukraine had made it harder to import some foods and led to higher costs for retailers.
The Bank has been rapidly raising rates to try to slow the sharp rise in the cost of living. Bailey has also said that the UK is no longer expected to go into recession and that average energy prices are expected to drop to £2,100 by the end of the year.
Meanwhile, small businesses have accused the Bank of England of being “out of touch” with the realities they are facing.
Martin McTague, chair of the Federation of Small Businesses, said firms will be “worried” to see rates rise again and said the latest decision risks “entrenching economic damage to small firms” by reducing their ability to invest and grow.
“Getting the rate of price rises under control is vitally important for small firms, but they could be forgiven for asking if the blunt weapon of base rate increases is effective, given that they are still very much feeling the effects of higher prices at the same time,” BBC quoted McTague as saying.
To use this website you must be aged 18 years or over. Please verify your age before entering the site.
