Workers are facing a record contraction in their incomes due to growth inflation threatens to plunge Britain into recession.

In a grim assessment, c Bank of England lowered growth forecasts and predicted double-digit growth cost of living. It says the economy will shrink from the end of this year as growing bills leave families struggling with less money.

He predicted that their post-tax wages would fall by an average of 3.25 percent in real terms in 2022, the biggest drop since the record began in 1990. And the bank said it now expects inflation to be above 10 percent in a few months, a 40-year high.

Buyers expect double-digit inflation, the highest since Thatcher’s first term as prime minister

By early 2024, inflation will remain above the 2 percent set by the government

By early 2024, inflation will remain above the 2 percent set by the government

This is five times the official inflation target of 2 percent and the highest level since 1982, when Margaret Thatcher was only in her first term as prime minister.

Questions and answers

Why the problem of inflation?

Fiery inflation means that prices for everyday goods can skyrocket for the poor as it undermines the value of money. At 10 per cent this means that £ 10 taken at an ATM last Christmas will be worth £ 9 this Christmas in terms of what he buys. Firms can lay off staff to cut costs, raise unemployment and hit living standards and economic output.

What is the risk of a high base rate?

As the Bank of England raises the base rate, lenders on the high streets will also raise their interest rates. For borrowers and mortgage holders, the cost of their debt will increase. But for investors who are struggling to make a profit, higher rates will give them a little more.

Why such high inflation?

The main factor in inflation is energy costs. Oil and gas prices have risen, but the war in Ukraine has pushed them up as the West shuns Russian supplies. Covid curbs in China, the world’s manufacturing hub, are contributing to supply shortages.

What can be done about it?

BofE is keeping inflation under cover by raising the base interest rate to stimulate savings rather than spending. But because this bout of inflation is caused by the energy crisis rather than consumer demand, it can do little.

Experts warn that the UK is on the verge of an attack of “stagflation” when production stagnates but prices rise. This is of concern to households because it is often associated with rising unemployment.

The cost of living crisis is holding back consumer spending by throwing Covid’s recovery in the opposite direction, the bank said.

This will lead to the fact that next year’s economy will shrink by 0.25 percent, compared to previous forecasts, it will grow by 1.25 percent.

Another concern for households experiencing hardship, the lowest unemployment rates will start to rise as businesses deprived of cash are forced to cut their costs.

The bank expects the unemployment rate to return to 5.5 percent in three years from a low of 3.6 percent this summer.

Responding to unfortunate forecasts, traders sold the pound, leading to its collapse of more than 2 percent against the dollar to a nearly two-year low of $ 1.23.

U.S. stock markets fell yesterday after the U.S. Federal Reserve raised its own interest rate by 0.5 percentage points on Wednesday. The bleak outlook will put new pressure on Chancellor Rishi Sunak to help families after a series of very unpopular tax increases – especially if yesterday’s local elections are held against the Tories.

Boris Johnson and his ministers are expected to meet next week to discuss how they can ease the cost of living crisis.

This week, the prime minister suggested that the government would announce further support for families in need, acknowledging: “We can still do it.” Trying to curb rising prices, the bank yesterday raised interest rates again to 1 percent – the highest level since 2009.

Central banks typically raise interest rates when prices rise rapidly in an effort to encourage savings rather than spending.

This was the Bank’s fourth growth since December – the first time its politicians have gone so aggressively since they gained independence from the Treasury 25 years ago. Three members of the nine-member Monetary Policy Committee, which sets interest rates, even voted for a further increase to 1.25 percent.

But despite the actions of the Bank, householders will still feel pain. On the one hand, the general standard of living is planned to be reduced by 1.75% this year, as wage growth is not keeping pace with rising prices. This would be the biggest blow to family budgets since 2011, when real disposable income fell 2.5 percent.

Yesterday’s rate hike will hurt for borrowers and mortgage holders who will see the value of their debt grow.

The head of the Bank of England Andrew Bailey warned of the consequences for ordinary Britons

The head of the Bank of England Andrew Bailey warned of the consequences for ordinary Britons

Bank Governor Andrew Bailey said: “I am aware of the difficulties this will cause.”

But his deputy, Ben Broadbent, stressed that the blow to households from rising interest rates will be small compared to the inflation shock they are already experiencing.

Mr Sunak earlier this year promoted controversial tax seizures despite warnings from economists. He raised contributions to national insurance, froze the income and inheritance tax threshold and failed to raise the state pension in line with inflation.

The increase in interest rates will affect housing loans, the figures show, as the Bank raised them to 1 percent

The increase in interest rates will affect housing loans, the figures show, as the Bank raised them to 1 percent

Julian Jessup, an economist at the Institute of Economic Affairs, said: “There is never a good time to raise taxes, but now it is horrible. The tax cut announced in a spring statement canceled only a sixth of the overall increase announced by Rishi Sunak after he became chancellor. At least by the fall, the government should take more action on energy prices so that the Bank’s gloomy economic forecasts do not become a reality.

Shortly before the bank made its announcement, Shell reported record profits of £ 7.3 billion in the first three months of the year, prompting new calls to introduce a tax on windfall income.

Critics of Mr. Sunak argue that he should shift some of the burden of inflation on the firms that benefit from it, instead of taking on the burden of households.

Supervisors of supermarkets surveyed by the Bank predicted that food prices could rise by more than 8 percent this year.

Combined with rising energy prices, this will disproportionately affect low-income families, who tend to spend much more of their money on food and bills.

Clothing retailers interviewed by the Bank said they may have to raise prices by 5-8 percent.

Most of the rise in inflation was energy prices, the bank said.

Yesterday, the bank again raised interest rates to 1 percent - the highest level since 2009

Yesterday, the bank again raised interest rates to 1 percent – the highest level since 2009

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