Andrew Bailey who is the head of the Bank of England has warned that food prices are set to increase, and is powerless to stop it. The comments come after confirmation that the United Kingdom will enter recession by the end of the year, and the war in Ukraine is expected to cause major food and fuel poverty throughout the world.
Image Credit: Steve Buissinne
The Governor of the Bank of England Andrew Bailey is worried about the worsening situation in Ukraine - after Western and Russian sanctions alike - have caused fuel prices to skyrocket to levels not seen in recent memory; consequently, food supply chains have been affected directly. It is estimated that Ukraine supplies roughly 10% of the world’s wheat supply, and it is a major supplier of the world’s sunflower oil.
Mr Bailey warned that devastating consequences directly linked to the war in Ukraine were 'getting worse,' during an appearance before the House of Common’ Treasury Committee.
The Governor has also said that the Ukraine crisis will continue to be the main driver behind price rises, he has said that: 'One is the risk of a further energy price shock, which would come from the cutting off of gas and distillates, such as products like diesel.
'And then, the one which I might sound rather apocalyptic about, is food.’
'Two things the finance minister said is that there is food in store but they can’t get it out.’
'While he was optimistic about crop planting, as a major supplier of wheat and cooking oil, he said we have no way of shipping it out and that is getting worse.’
'It is a major worry for this country and a major worry for the developing world.'
Global supply chains were already devastated from the coronavirus epidemic, and the restrictions that have done much more harm to countries than have done in any other positive way according to research; the war in Ukraine just makes that situation even worse.
He has been informed of Ukraine’s difficulties in shipping produce outside of the country; adding to the fear that food inflation is spiraling out of control: the Bank states that food inflation has been at the worst level for over 30 years.
Mr Bailey said that: 'The main driver of inflation and what brings it down is the very big, real income shock which is coming from outside forces and, particularly, energy prices and global goods prices.'
'That will have an impact on domestic demand and it will dampen activity, and I'm afraid it looks like it will increase unemployment.'
The huge increase in food prices has already put many low and middle income households under pressure as production cannot meet demand.
At the same time, the Governor of the Bank of England has urged Britons to not take a pay rise. Mr Bailey is a high income earner with a yearly salary of £570,000, as the head at Threadneedle Street - he has told MPs that those with high salaries should 'think and reflect' before asking for bigger bonuses.
The Governor has already reinforced his idea that workers should not be demanding bigger pay packets - even though the country is experiencing the worst cost-of-living crisis in a generation - in order to soften skyrocketing inflation.
My Bailey’s suggestion that workers should not ask for pay rises to help stave off inflation has been met with anger.
Despite the angry backlash, he still maintained his stance and said that he was not preaching on the issue during his appearance before MPs.
He said: 'I spoke in an interview about this,' he said.
'I do think people, particularly people who are on higher earnings, should think and reflect on asking for high wage increases.’
'It’s a societal question. But I am not preaching about this. I was asked if I have taken a pay rise myself this year and I said no, I had asked the Bank not to give me one, because I felt that was the right thing for me personally.’
'But everybody must make their own judgment on that. It’s not for me to go around telling people what to do.’
'In that sense I know I may have been interpreted as doing that, but I wasn’t. What I was saying is that maybe people should reflect on it, particularly people in that situation.'
On the one hand, MPs’ said that the Bank of England had been out of touch and 'asleep at the wheel' during his appearance; on the other hand, Mr Bailey proclaimed that that there was no way they could have 'foreseen' the Ukraine war - even when economists had been making 'fine and hard judgments.'
He went on to say: 'As you say, there have been a series of supply shocks and most recently with the impact of the war, Russia's invasion of Ukraine.'
'We can't predict things like wars - that's not in anybody's power.’
'I don't think we could have done anything differently; we could not have seen a war with Ukraine.'
In the end, Mr Bailey dismissed the criticism from MPs, responding with: 'not a world that I particularly respond to at all.'
He said that maintaining the Bank's independence was 'always' a main priority.
'This is the biggest test of the monetary policy framework that we have had in 25 years, no question about that,' he said.
'What I would say to these people is that this is when both the independence of the bank and the target framework and the nominal anchor matter more than ever, frankly. More than in the good times, the easy times as it were.'