Still, prices are rising even faster. For months, the higher inflation rates have prompted concerns about a cost-of-living crisis in Britain, as the budgets of households, particularly low-income ones, are squeezed by the highest food price inflation in a decade, expensive energy bills and other rising costs.
For 2022, the bank’s measure of households’ net income after taxes and inflation is expected to fall by 2 percent from last year, and fall again in 2023. In November, the central bank had projected a 1.25 percent decline for this year.
Since 1990, that measure of income has only fallen twice before on an annual basis, in 2008 and 2011.
Eventually, the squeeze is expected to hamper the overall economy. Growth in gross domestic product is “expected to slow to subdued rates” over the next few years, according to minutes of the rate-setting meeting which concluded on Wednesday, with energy and goods inflation cited as the main reasons. The central bank also expects the unemployment rate to rise to 5 percent, after falling to 3.8 percent in the first quarter.
That economic slowdown — along with higher interest rates — is expected to push inflation back below the central bank’s target by 2024.
On Thursday, policymakers also voted to begin reducing the bank’s bond holdings, made up of £875 billion in government bonds and £20 billion in corporate bonds. The bank will stop reinvesting the proceeds from bonds as the debt matures.
Interest rates are likely to rise again in “the coming months,” policymakers said. But Mr. Bailey warned against making assumptions about how high and how fast these increases will be.
“We face a trade-off between strong inflation and weakening growth,” he said. Given this uncertainty, he added, policymakers “will, it scarcely needs to be said, remain very vigilant.”
