Published: 11:42 EDT, 18 April 2012 | Updated: 19:27 EDT, 18 April 2012>
Inflation warning: Deputy governor of the Bank of England Paul Tucker
The brutal squeeze on middle class family finances will last for longer than expected, the Bank of England warned yesterday.
In a bitter blow to millions of households, deputy governor Paul Tucker said Britain will be stuck with high inflation for much of 2012.
The stark warning from Mr Tucker – who is among the favourites to succeed Sir Mervyn King as governor next year – dashed hopes that the worst squeeze on household incomes since the 1920s will come to an end any time soon.
The Bank also warned that Britain could already be in the midst of a nine-month recession before recovering in the second half of the year.
The gloomy verdict comes as cash-strapped families struggle to make ends meet in the face of muted wage growth and soaring prices.
Savers – who have been hammered since interest rates hit lows of 0.5 per cent more than three years ago – are also suffering as no high street savings accounts are currently beating inflation.
And millions of thrifty pensioners have seen their retirement plans shattered by the Bank’s £325billion money printing programme.
The Bank of England hinted that it has stopped printing money amid inflation fears
Rumours that the Bank had stopped quantitative easing caused the pound to jump to its highest level against the euro since September 2009
Official figures yesterday showed the average pay rise across the country is just 1.1 per cent – well below inflation, which rose from 3.4 per cent in February to 3.5 per cent in March.
Scott Corfe, senior economist at the Centre for Economic and Business Research, said: ‘Household incomes continue to fail to keep pace with the rising cost of living, implying an ongoing erosion of living standards.’
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In February, the Bank forecast that inflation would fall to the official 2 per cent target later this year, having peaked at 5.2 per cent last September.
At the time, Sir Mervyn said: ‘With falling inflation and the prospect of an end to the squeeze in real incomes leading to a recovery in growth, we are moving in the right direction.’
The pound also went up against the U.S. dollar on the back of the news
But Mr Tucker yesterday admitted there had been ‘bad news on the inflation front’ and it ‘remains uncomfortably above target’, dealing a blow to hopes of recovery.
He told a conference in Liverpool: ‘I think inflation might remain above 3 per cent throughout the second quarter of this year and possibly into the second half of the year.’
Simon Ward, chief economist at asset management firm Henderson, said the Bank was on course for another ‘forecasting miss in 2012’.
He warned that even the projection that inflation would finish the year at 2.75 per cent may be too optimistic.
The Bank is likely to have to ratchet up its predictions once again in next month’s Inflation Report, in another embarrassing revision to its forecasts.
Mr Tucker blamed a 5 per cent rise in oil and gas prices since February and a host of tax changes in last month’s Budget, including a 37p rise in cigarette duty.
‘Already in February there was a risk that inflation might fall back towards target less quickly than incorporated into our “most likely” central outlook,’ he added.
Mr Tucker’s comments suggested that the Bank will not sanction printing any more money through its controversial quantitative easing programme.
Source : http://www.dailymail.co.uk/news/article-2131640/Blow-middle-classes-Bank-England-deputy-says-squeeze-stay.html1120