Bank of England Warns Businesses Over Price Rises
Businesses have recently been raising prices further, which has done nothing to help inflation. As some companies have tried to beat inflation, the cost of living has gotten even worse, but this has affected the least well-off the most. As a warning, Andrew Bailey, the Bank of England Governor, has said that interest rates will most likely need to be raised again if businesses keep upping their prices.
The news comes after inflation rose higher in February, by 0.3%. It was widely expected that measures put in place would start to curb inflation, but vegetable shortages contributed to this unexpected increase. The least well-off households don’t have as much disposable income to spend on food and energy, which is why they will be affected more by these price hikes.
As the Bank Rate has been its highest in 14 years, it’s been in place to stop consumers spending so much and make borrowing more expensive. This stops prices rising so quickly, cooling inflation to regular levels. The target is always for inflation to be at 2%, which is a long way for inflation to fall, with current levels over 10%. Inflation is due to fall sharply later this year, but Andrew Bailey has asked businesses to be careful to not make matters worse.
Restaurants have been bearing the brunt of a lot of price increases for a while, but government support is going to be reduced from April. As restaurants and food chains have been struggling to balance food prices, wages, stock and energy bills, costs are widely believed to shoot up in the next few months unless existing support is extended. Restaurants will close if the impact isn’t mitigated because if price rises were to reflect actual costs faced, even a side salad and a pint would cost £20 each, according to one source.
John Allan, Chairman of Tesco, said back in January that businesses may be using inflation as an excuse when it came to raising prices. Firms could hide additional costs in these price rises, worsening inflation even more. Food inflation has been one of the main drivers in upping overall inflation levels. Cheese, milk, sugar and eggs have been some of the quickest products to increase in price so sharply. In the last year, cheddar has increased in price by 49%, with 2 pints of milk not far behind at 43%. Granulated sugar has gone up 31% and eggs 29%. Food inflation is sitting at 18.2%, which is the highest it has been since 1978.
Although inflation has been increasing, the outcome for summer levels is brighter as energy is set to decrease. Whether energy prices will fall quickly or slowly is another debate, as the UK’s inflation is now among one of the highest in the G7. Due to a mix of food prices, the high cost of energy, worker shortages and wage rises, inflation has remained high for so long. Brexit has taken some of the blame, particularly in relation to worker shortages, but the UK is still suffering from never having recovered to pre-pandemic levels of growth.