Cost of living crisis: More inflation rises to come, warns former Bank of England boss

4 February 2022, 08:12

Ex-Deputy Governor of the Bank of England speaks to LBC

The former Deputy Governor of the Bank of England has told LBC there are more inflation rises to come, as millions of Brits feel the effects of the spiralling cost of living crisis.

Speaking to Nick Ferrari at Breakfast, Sir John Gieve said the Bank was worried price increases would "spread from energy prices and food into wages and across the economy generally" in a "spiral" effect where even higher interest rates are required.

When Nick asked if there would be another rise soon, Sir John said: "I'd be very surprised if there isn't.

"And the markets now expect interest rates to go up to, say, 1.5 per cent by the end of this year.

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"I think it could even go further."

When Nick pressed him on what inflation could rise to, Sir John said 2-3 per cent was "not out of the question" but highlighted that it was very dependent on what happened to wages.

If wages did not substantially increase, he said, "we'll have a miserable 2022 with lower real incomes, but inflation will come down sooner".

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It comes after the Governor of the Bank of England urged workers not to ask for a big pay rise in order to control inflation.

His comments have been criticised by some, with many pointing out that he earns more than half a million pounds a year.

Andrew Bailey said the UK needed to see "some moderation of wage rises" - something he conceded was "painful" - in order to prevent inflation from "spreading".

"What we can do is try to prevent inflation spreading and becoming more engrained in the system," Mr Bailey told the BBC.

When asked if he was telling people not to ask for "too high" a pay rise, he said: "Broadly, yes."

Mr Bailey was paid £575,538, including pension, in the year from March 1 2020.

Sir John said he could "imagine" people would take issue with the comments but defended Mr Bailey, saying: "What he was trying to say was that in the past when inflation has really got going - as it did 30 years ago - it was because wages changed prices, that led firms to put up their own prices, and then you've got a spiral developing."

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Millions of Brits are feeling the squeeze of the cost of living crisis.

On Thursday, Ofem announced it was raising the price cap on energy by £693 per year to £1,971.

As well as facing a 54 per cent increase in gas bills, Brits are also seeing surges in the price of necessities such as food and petrol.

And, also on Thursday, the Bank of England announced it was doubling interest rates to 0.5 per cent - which penalises borrowers and encourages people to save money rather than spend it.