Workers face a record squeeze on their incomes as surging inflation threatens to drive the UK into recession.
In a grim assessment, the Bank of England slashed growth forecasts and predicted a double-digit rise in the cost of living. It said the economy would shrink from the end of this year as soaring bills leave struggling households with less cash to spend.
It predicted that employees would see their post-tax pay fall by 3.25 per cent on average in real terms in 2022 – the biggest drop since records began in 1990. And the Bank said it now expected inflation to peak above 10 per cent within months, a 40-year high.
Shoppers are set to face double-digit inflation, the highest since Thatcher's first term as PM
Inflation is set to remain above the government's 2 per cent target until early 2024
This is five times the official inflation target of 2 per cent and the highest level since 1982, when Margaret Thatcher was only in her first term as prime minister.
Experts warned the UK was on course for a bout of ‘stagflation’, where output stagnates but prices soar. This is worrying for households because it often comes with higher unemployment.
The cost of living crisis will put the brakes on consumer spending, throwing the Covid recovery into reverse, the Bank said.
This will cause the economy to shrink by 0.25 per cent next year, down from previous predictions it would grow by 1.25 per cent.
In another worry for households feeling the pinch, rock-bottom levels of unemployment will begin to rise as cash-strapped businesses are forced to cut their costs.
The Bank thinks joblessness will be back up to 5.5 per cent within three years, from a low of 3.6 per cent this summer.
Responding to the downbeat forecasts, traders sold off the pound, leading to it slumping by more than 2 per cent against the dollar to a near two-year low of $1.23.
American stock markets tumbled yesterday after the US Federal
