Economists have warned that inflation could soar as high as 15% this winter if Russia shuts off the gas supply to Europe in response to sanctions. The warning comes when inflation is already at its highest in four decades, and interest rates have been hiked to try and bring it down. According to industry experts, other factors such as continued food price increases could also contribute to higher inflation.
While the Bank of England predicts that inflation could rise to 11% by the winter, economists’ forecasts suggest it could be much higher. June 2022 saw inflation hit 9.4% and sparked fears that the central bank will increase rates by considerably more than the 0.25% hikes seen to date.
The projections relating to inflation have been made by economists at the accountancy firm EY. If they are correct, some believe it could lead to another ‘Winter of Discontent’ as seen in the 1970s when a spate of strikes occurred due to soaring prices and disputes over pay.
Mats Persson from EY stated that many companies were now bracing themselves for higher-than-expected inflation this winter. He added that to try and avoid pushing prices even higher by increasing pay, businesses would need to think of alternative ways to retain staff.
Hints of a 0.5% increase
Since December last year, there have been several base rate hikes in a bid to tackle rising inflation. However, the Bank of England has made it clear that it will take more aggressive steps to try and bring inflation down. Bank of England governor Andrew Bailey has said that there is a chance that the next rate hike could be 0.5%.
If the Monetary Policy Committee, which is due to meet next week, does impose this hefty increase, it would mark the most significant hike since the mid-1990s. Such a move would take the base rate to 1.75%, the highest since December 2008.
Many families are already struggling because of soaring prices affecting the cost of everyday essentials such as food, energy, and gas. With interest rates also increasing, this has put further pressure on households, with variable mortgage repayments rising rapidly. A further 0.5% hike will undoubtedly leave many facing severe financial difficulties.
As a result of this financial pressure, a lot of people have had to reduce their spending. This has sparked fears that the economy could fall into recession.