Andrew Bailey, the governor of the Bank of England (BoE), has warned of “apocalyptic” global food price rises, while pointing to further UK interest rate hikes to control inflation.
He told MPs at the Treasury Select Committee on Monday that he is increasingly concerned about a further surge in food costs if Ukraine is unable to send products such as wheat and oils from its warehouses due to a Russian blockade.
Bailey said that runaway energy and food costs driven by global market forces were beyond his control, admitting he feels "helpless" when it comes to surging inflation.
“The risk I'm going to sound rather apocalyptic about I guess is food. Ukraine does have food in store but it can’t get it out at the moment," he said.
"While the finance minister was optimistic about crop planting, he said at the moment we have no way of shipping it out as things stand, and it is getting worse.
“That is a major worry. It is not just a major worry for this country, it is a major worry for the developing world."
It came as he faced a grilling over runaway inflation rates. The Treasury Committee asked Bailey to respond to claims that he had been "asleep at the wheel", along with other senior figures.
Sir Dave Ramsden, deputy governor, was also present, as well as external members of the Monetary Policy Committee (MPC) Jonathan Haskel and Michael Saunders.
Earlier this month, the BoE increased interest rates for the fourth consecutive time, from 0.75% to 1% — the highest level in 13 years.
The move came as a bid to combat soaring inflation exacerbated by the Ukraine war and rising energy prices.
It now expects inflation to hit as high as 10% this year, five times its 2% target, as markets are bracing for a further surge in energy prices later in October. Inflation was last below 2% in July.
The governor also implied on Monday that he would be prepared to increase rates to control inflation even if that led to a recession.
“We have to get inflation back to target. And that is clear," he said.
“We can't predict things like war,” Bailey told the committee. “A sequence of shocks like this that have come one after another with almost no gaps is almost unprecedented I think.”
"It's a very, very difficult place for us to be in," he added, pointing out that a "further leg" of COVID in China has sparked fresh concerns about supply chains and economic growth.
The Bank also forecast a sharp slowdown in UK growth in the latter part of the year, pointing to a possible recession. Britain is on course to shrink by 0.25% in 2023, it said.
The MPC said the UK will avoid a technical recession, but that output will collapse by close to 1% in the final quarter of this year as the cost of living crisis bites. Meanwhile, in 2024 the British economy will stagnate with growth of just 0.25%.
The Treasury Committee questioned whether the Bank’s decision to hike interest rates contributed to the worsening of the economic outlook, as well as rises in the cost of living.
The Bank has faced criticism from ministers for “failing to get things right”. Stride previously accused the Bank of being “slow off the mark” in raising interest rates to combat inflation.
Michael Saunders, who voted for a more hawkish 50 basis point increase at this month's meeting, said he would like the Bank to move more aggressively.
However he added that even if the Bank had raised rates more aggressively last year, it's unlikely that would have brought inflation back down to the target of 2%.
"It would have made a different only at the margin, if it had made a difference at all," Dave Ramsden also said.
Threadneedle Street has so far argued that if it had acted sooner, it would have increased the risk of a recession, especially in light of the end of the government’s furlough program and risks of unemployment.
Bailey told the Treasury Committee that the UK labour market has declined by 450,000, or 1.3% due to an increase in long-term sickness, adding that the "persistence and scale" of the drop has been a surprise.
He added that the current climate was the Bank's biggest test in its 25 years of independence, insisting that the crisis only makes independence and the inflation target more important.