Cost of living crisis: Bank of England warns price rises will bite even harder

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Bank of England deputy governor Ben Broadbent says inflation is likely to rise “comfortably” above five per cent next spring. The rise will kick in when energy regulator Ofgem raises a price cap on bills.

The Bank monetary policy chief predicted an “extremely challenging period”, after inflation shot up to 4.2 per cent in October, the highest for almost a decade, driven by rising energy and fuel bills: gas costs soared by 28.1 per cent while electricity rocketed up by 18.8 per cent. Petrol was pumped up by 25.4p a litre to 138.6p, the highest since 2012, as crude oil prices surged.

Also costing more were clothes, household goods, transport, hotel stays, transport – and raw materials.

The inflation hike has heightened fears for 10 million pensioners, with many already on the breadline. It has also led to calls for a Government U-turn on its “mean-spirited and short-sighted” decision to suspend the triple lock protection on state pensions.

Interest rate setter Mr Broadbent said inflation was on course to increase until at least next April.

He predicted an “extremely challenging period for monetary policy”, with inflation set to climb “a long way North” of the Bank’s two per cent target despite two years of weak global and UK economic growth: “The aggregate rate of inflation is likely to rise further over the next few months and the chances are that it will comfortably exceed five per cent when the regulator’s cap on retail energy prices is next adjusted,” he said at Leeds University Business School.

Record high job vacancies are likely to persist for longer than previously expected while the market adjusts to changes in the economy brought on by the pandemic.

Mr Broadbent said uncertainty on the impact of wage rises demanded by staff trying to protect themselves against falling living standards meant he was continuing to watch for signs of a wage and price spiral.

The triple lock formula guarantees the state pension will increase every year by whichever is the highest of inflation, earnings growth or the figure of 2.5 per cent.

But the earnings rate has been pushed up artificially to around eight per cent due to the furlough scheme and the loss of some lower-paid jobs during the Covid response.

Fearing a costly pensions bill and criticism as Chancellor Rishi Sunak announced a 1.25 per cent social care levy on National Insurance for working-age people, ministers suspended the lock for a year. That means pensioners will receive an increase of 3.1 per cent (£5.55) a week, with pensions rising from £179.60 to £185.15 next April.

The rise adds up to £288.60 a year but with inflation already running at 4.2 per cent and set to rise, pensioners will lose money in real terms as energy and food bills soar.Campaigners last night renewed calls for the triple lock to be reinstated.

Dennis Reed, director of pressure group Silver Voices, said: “The decision to suspend the triple lock looks increasingly mean-spirited and short-sighted. We fear that by the time the next state pension increase is due in April, inflation will be at least double the 3.1 per cent the Government has budgeted for pension rises.

“The astronomical increases in energy prices have not fully fed through yet to the costs of essentials such as food and clothing.

“Millions of pensioners, who are either already below the poverty line or just about managing, will receive a further damaging cut to their living standards. The Government must reverse its decision to suspend the triple lock in view of these unprecedented rises in energy prices and also bring forward the next increase in the basic state pension from April 1 to January 1.”

Ex-pensions minister Baroness Altmann said pensioners are at greater risk from price rises in energy and basic materials which form a larger part of spending by older households: “The poorest pensioners were already sometimes having to choose between heating and eating, with rises in heating bills already in the pipeline. They will have an even greater problem and are at risk of being unable to manage.”

Sir Steve Webb, a partner at consultants LCP and another ex-pensions minister, said: “Soaring energy bills, surging costs in the shops and big rises in council tax bills will more than wipe out the modest state pension increase planned.

“It’s not too late for the Government to change its mind…and make sure that the pension rise truly reflects the increase in the cost of living facing pensioners, rather than a figure that will be six months out of date.”

Mr Broadbent was among seven members of the Bank’s nine-strong monetary policy committee to wrongfoot financial markets when it voted to keep interest rates on hold last month.

They next meet on December 16.

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Older people will bear the brunt, says JAN SHORTT

Older people are facing a bitter winter of worry as rocketing inflation pushes up the cost of food and fuel and outstrips limited incomes.

The Bank of England assertion that inflation will rise by more than five per cent next spring – just as Ofgem raises the price cap on heating bills – is terrifying for many pensioners on a fixed income.

The National Pensioners Convention knows that millions of older people are already having to make critical decisions on how they spend their money.

This is a problem that is set to worsen as the cost of food, fuel and every day needs rapidly increase.

Now they must contend with an even greater financial winter storm.

First news of the inflation hike came last month, just 36 hours after MPs voted down a House of Lords amendment to save the triple lock, which ensures the state pension increases to the highest of inflation, wage growth or 2.5 per cent each April.

Despite a manifesto pledge, the Government wants to scrap the lock – a vital measure to protect the lowest pensions – just as the Ofgem cap comes off fuel prices, which will lead to higher heating costs.

Over-75s are already having to find an extra £159 for a TV licence – a fortune if you are on a meagre state pension – after their free offer was scrapped.

These measures to protect our oldest are being gradually chipped away and having a devastating impact.

The Government is mistaken if they think older voters will forgive or forget this gross betrayal of trust – from the triple lock pledge to the TV licence axing.

Despite the view that all elderly are wealthy, there are currently 2.1 million living in poverty. In fact, most pensioners live on £10,000 a year or less, with only 545,000 of them paying tax at the higher rates, while around six million don’t earn enough to pay any tax at all.

Yet the Prime Minister and his Government have chosen to ignore these alarming figures and deprive pensioners of a rise of a few pounds a week so the Chancellor can hand out billions in tax breaks to banks and big business.

We need the Prime Minister to step in with measures to regulate prices and most importantly help those in need afford the basics he and the more well off take for granted.

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