The Bank of England governor has blamed the war in Ukraine for the highest inflation in the UK for three decades and warned that “apocalyptic” food prices caused by Russia’s invasion could have a disastrous impact on the world’s poor.
Giving evidence to MPs, Andrew Bailey said while he was unhappy about the level of price rises, 80% of the inflation overshoot was caused by factors outside the Bank’s control.
“I don’t feel at all happy and it’s a bad situation to be in,” the governor told the Treasury select committee as he was asked to explain why inflation stood at 7% – more than three times its official 2% target.
“We have seen a series of supply shocks coming one after another and that’s unprecedented.”
After weekend reports that unnamed cabinet ministers had questioned whether the Bank should remain independent, Bailey said: “This is the biggest test of the monetary policy framework in 25 years. There is no question about that.”
Official figures due this week are expected to show the annual inflation rate rising above 9%, a level not seen since the early 1980s.
Asked about the future risks to the cost of living, Bailey said there could be prolonged supply chain bottlenecks as a result of disruption in China or higher energy prices if Russia decided to cut off gas supplies.
The governor said his concerns about food supplies had been heightened after speaking to Ukraine’s finance minister at last month’s IMF meeting in Washington.
“He said he was optimistic about crop planting but at the moment there was no way of shipping the food out and it’s getting worse,” Bailey said. “That’s not just a major worry for this country but a worry for the developing world. I’m sorry for being apocalyptic but it is a worry.”