‘There is a feeling of economic chill in the air,’ Bank of England governor Mervyn King said yesterday.
Introducing the Bank’s latest monthly inflation report, King warned workers and the middle class: ‘The adjustment of the UK economy to higher commodity prices and a more realistic pricing of credit will be painful.’
Predicting 5% official inflation, he said: ‘Increases in food and energy bills will intensify the squeeze on real take-home pay, which for many households, is unlikely to grow this year.’
King added that consumer spending and house prices would weaken, particularly because of tighter credit conditions that were expected to continue.
He said that ‘with broadly flat output, it’s bound to be the case that there is a possibility of a quarter or two of negative growth’, indicating his fears of recession.
But with ‘inflation high’ it was unlikely the Bank would cut interest rates.
The Bank’s last inflation report in May forecast growth to fall to around the 1% mark at the end of this year.
King’s statement made nonsense of a TUC demand that ‘the government and the Bank of England must act to stem rising unemployment’.
The TUC was responding to the latest Office for National Statistics (ONS), report which said: ‘The unemployment rate was 5.4 per cent for the three months to June 2008, up 0.2 over the previous quarter.
‘The number of unemployed people increased by 60,000 over the quarter to reach 1.67 million.
‘The claimant count was 864,700 in July 2008, up 20,100 over the previous month.
‘The Claimant Count has increased over the month in all regions of the UK.’
The ONS said: ‘The employment rate for people of working age was 74.8 per cent for the three months to June 2008, down 0.1 from the previous quarter.
‘The number of people in employment for the three months to June 2008 was 29.56 million, up 20,000 over the quarter and up 384,000 over the year.
‘Total hours worked has fallen by 6.3 million over the quarter to reach 942.0 million. This reflects a fall in average hours worked by workers in full-time employment.
‘The inactivity rate for people of working age was 20.9 per cent for the three months to June 2008, unchanged over the previous quarter but down 0.3 over the year.
‘The number of economically inactive people of working age fell by 3,000 over the quarter and by 84,000 over the year to reach 7.88 million.’
TUC Head of Economic and Social Affairs Adam Lent said: ‘With the unemployment rate, claimant count and level of redundancies all rising, workers will expect the government and the Bank to take decisive action to stop unemployment growing further still.
‘If they fail to do so, unemployment will rise significantly in 2009 and inactivity will carry a high economic and social price.
‘Unions are looking for action to boost demand; we urge the Bank to cut interest rates and the government to take the cap off public sector wage increases.’
