Bank of England warning: UK told to brace for major economic storm – panic as prices erupt

Gordon Brown issues warning about inflation and recession

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The effects on global supply chains do to the war in Ukraine, particularly the rise in food and energy prices, were partially to blame. The report comes as Sainsbury’s boss Simon Roberts warned of intensifying pressures on households across the country.

He said: “We really understand how hard it is for millions of households right now and that’s why we are investing £500 million and doing everything we can to keep our prices low, especially on the products customers buy most often.”

“The pressure on household budgets will only intensify over the remainder of the year and I am very clear that doing the right thing for our customers and colleagues will remain at the very top of our agenda.”

The report states: “Following Russia’s illegal invasion of Ukraine, global inflationary pressures have intensified sharply. This largely reflects steep rises in energy and other commodity prices that have exacerbated inflationary pressures arising from the pandemic, and further disruption of supply chains.

“Household real incomes and the profit margins of some businesses have fallen as a result.”

The reported stated that stated that if food and energy prices continued to rise, something which seems likely as the war in Ukraine has no end in sight, that the economic outlook could worsen further.

It read: “Developments related to the Russian invasion of Ukraine are a key factor that will affect both the global and UK outlooks, particularly if energy and food prices rise further. Stronger or more persistent inflationary pressures than currently expected might lead to: weaker economic growth globally; a further sharp tightening in global financial conditions; and the potential for further volatility and stress in financial markets.”

This would likely “increase the pressures” already facing households and businesses.

More to follow

In addition to the warnings about inflation and consumer goods price increases, the report stated that the UK’s banking sector “remains strong”.

However, it warned banks not to become too “prudent” with regard to lending.

It said: “Setting lending terms to reflect the new risk environment is appropriate. Restricting lending solely to defend capital ratios or capital buffers would be counterproductive and could prevent credit-worthy businesses and households from accessing funding. Such excessive tightening would harm the broader economy and ultimately the banks themselves.”

Capital ratios are the amount of funds a bank holds in reserve to protect itself in the event of a crisis which could affect its riskier holdings.

ITV’s political editor Robert Preston said on Twitter: “The Bank of England is warning of a material deterioration in the economy and risks to banks. It wants banks to continue to fund creditworthy businesses and individuals, but acknowledges the risk that they will worsen the downturn by reining in credit.”

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