As the UK was cautioned to brace for difficult times, Boris Johnson indicated today that ministers may lift food tariffs to relieve the cost-of-living issue.
The PM said he has discussed lowering trade barriers with other foreign leaders, with oranges and bananas among the items that may be made more affordable.
The Bank of England issued a stern warning that the UK faced a harsher downturn and greater inflation than other affluent countries at the same time Mr. Johnson made his remarks while attending a NATO meeting in Madrid.
In a somber assessment, governor Andrew Bailey said the economy was suffering from a “very big national real income shock” and was at a “turning point” in its post-Covid recovery.
Additionally, he stated that the Bank was prepared to raise interest rates more quickly as it fought to bring inflation under control.
Prices have risen by 9.1% over the past year, the largest increase in 40 years, despite the Bank’s mandate to limit inflation at 2%.
The headline CPI rate is expected to top 11 per cent by the end of the year.
Asked if the cost of living challenge is going to get worse before it gets better, Mr Johnson told reporters: ‘I wouldn’t want to put it in exactly that way. But what I would say is that it is going to continue to be an issue for a while.’
He added: ‘Very interestingly at the G7, there’s a new impetus to cut food tariffs. [There is] $750billion worth of food tariffs around the world.
‘Biden is now going to cut $178billion worth. That would be that would be a good thing, including on pet food by the way.
‘We’ve got food tariffs we don’t need… Do we in the UK need to have tariffs on oranges?
‘We don’t grow many bananas in the UK, I don’t think.’
The spokesperson for the prime minister said: “That is something that we are looking into. It doesn’t make sense at the time of the global cost of living crisis to apply tariffs on when there is no type of UK competition on the other side.”
The Bank predicts that as a result of the energy price cap climbing once again and rising costs for other goods like food and gasoline, inflation will reach 11% by the end of the year.
Given the rise in living costs and the potential for the nation to enter a recession, worries have been raised regarding the Bank’s handling of the economy under Mr. Bailey.
He declared yesterday: “I believe the economy is obviously slowing a little earlier and a little more than others.” He was discussing important central bankers at the moment while in Portugal.
He said, “We are currently experiencing a very significant national real income shock that is coming from outside.” The magnitude of the shock is enormous. due to the fact that it will decrease domestic demand, have an impact on the labor market, and generate inflation.
‘When I look at the UK economy at the moment, it’s very clear that the economy is now starting to slow. We are at something of a turning point in that respect.’
Mr Bailey also warned a further increase in the energy price cap in October – following the hike in April – would push inflation even higher.
The Bank has been criticised for acting too slowly to curb inflation. It has raised rates five times since December from 0.1 per cent to 1.25 per cent, but never by more than 0.25 percentage points at a time.
By contrast, the US Federal Reserve has raised rates three times since March, by 0.25, 0.5 and 0.75 percentage points.
Mr Bailey said the Bank has ‘the option’ to act more forcefully – implying a rise of 0.5 percentage points could be on the cards as soon as the next meeting of the rate-setting monetary policy committee in early August.