New inflation warning for coming months is 'really grim', warns top economist

·Breaking News Editor, Yahoo News UK
·3 min read
File photo dated 22/07/09 of a shopper in a supermarket. Shop price inflation has hit its highest rate since September 2011 amid warnings to consumers that the full impact of mounting costs is yet to be seen. Issue date: Wednesday March 30, 2022.
UK inflation, which is at its highest level for decades, is predicted to soar further. (PA Images)

New forecasts of a double digit inflation have been described as "really grim" by a top economist as the UK battles a spiralling cost of living crisis.

On Thursday, The Bank of England (BoE) predicted that inflation is set to hit 10% later this year.

The BoE raised UK interest rates to 1%, the highest level in 13 years, as it battles to keep a lid on soaring prices, sparking warnings of a "hangover of household debt problems" by a debt charity.

The rise brings interest rates to their highest level since February 2009, when they were hiked during the recession.

File photo dated 20/09/19 of the Bank of England, in the City of London. The Bank of England is expected to raise interest rates on Thursday to their highest level for 13 years as the Bank of England battles to cool rocketing inflation. Issue date: Sunday May 1, 2022.
The Bank of England has raised interest rates to their highest level for 13 years as it battles to cool rocketing inflation. (PA Images)
Inflation is at its highest levels for 30 years. (Yahoo News UK)
Inflation is at its highest levels for 30 years. (Yahoo News UK)

Inflation hit a fresh 30-year high of 7% in the year to March on the back of soaring energy, fuel and food prices, well above the Bank’s 2% target.

Torsten Bell, CEO of the Resolution Foundation, gave his impression of the latest news from the BoE, tweeting: "Really grim forecast from the Bank of England: first double digit inflation in four decades with a peak over over 10% later this year."

It comes as debt charity StepChange warned more needs to be done to avoid a prolonged hangover of household debt problems that will be exacerbated by higher rates.

Director of external affairs Richard Lane said: "The Treasury showed itself to be agile and reactive to the country’s financial challenges during the pandemic – it’s now time to display these same traits in response to a similarly dire situation.

"Measures including raising benefits to match current levels of inflation, furthering energy bill support, pausing deductions to benefits and halting debt enforcement and the use of bailiffs where households are vulnerable and unable to pay, are all ways in which those on the lowest incomes can be helped to navigate the current crisis.”

Watch: Bank of England predicts cost-of-living 'hardship'

Two in five adults are already finding it difficult to pay their energy bills amid the cost-of-living crisis, new figures have shown.

Office for National Statistics (ONS) research released on Friday showed 40% of Britons reported finding the bills very or somewhat difficult to afford between 30 March and 24 April.

The Bank has predicted the economic picture will get even worse, forecasting that growth will contract in the final three months of 2022 as the cost squeeze sees households rein in their spending.

The UK is set to narrowly miss a technical recession, as defined by two quarters in a row of falling gross domestic product (GDP).

But the BoE forecast “very weak” quarterly growth in 2023 and a contraction as a whole next year, with GDP falling by 0.25% and unemployment picking up sharply as cost pressures hit hard.

Prime Minister Boris Johnson arrives to vote at Methodist Central Hall, central London, in the local government elections. Picture date: Thursday May 5, 2022.
Boris Johnson has insisted the Conservatives are the best option at controlling the economy. (PA)

The prediction for growth in 2022 remains unchanged at 3.75%, although the Bank also slashed its growth outlook for 2024 to 0.25% from the 1% it predicted in February.

The government has been put under pressure to help more, and as voters head to the polls on Thursday it is expected the Conservative Party will be punished over their current policies.

Labour leader Sir Keir Starmer said that the local elections will be a "a chance to send a message to the government about their abject failure".

Boris Johnson has said voting for the Conservatives would be the best option "if you want help with your family budgets and you want to make sure you've got more at the end of the month".

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