The Bank of England says the cost of living crisis will last until 2023

The cost of living crisis won’t ease for another year and could last until 2024, according to the governor of the Bank of England.

Andrew Bailey, speaking to the BBC after the bank doubled interest rates to 0.5 per cent, said workers will face real-terms pay cuts.

“We’re going to start coming out of it in 2023, and two years from now, we expect inflation back to a more stable position,” he said.

“It is going to be a difficult period ahead, I readily admit, because we are already seeing, and we’re going to see, a reduction in real income.”

Household budgets are facing unprecedented pressure after inflation hit a 30-year high in December, despite stagnating wages. Soaring energy bills forced people to choose between heating and other essentials such as food – which is already increasing in price. Two-thirds of British adults have already been affected by the cost of living crisis in 2022, according to new data. 

And after Ofgem announced the energy price cap would rise by 54 per cent this April – adding £700 to the average annual fuel bill – people in the UK will face the biggest drop in living standards since 1990, when records began.

Post-tax incomes will fall by two per cent this year, the bank said. But Bailey – who was paid more than £575,000 in 2020 – warned workers against bargaining for pay rises to counter the rising cost of living because employers would pass on their higher costs to customers in the form of price rises, driving inflation up further.

“We do need to see a moderation of wage rises,” Bailey said. “That’s painful. I don’t want to in any sense sugar that message, it is painful.

“I’m not saying ‘don’t give your staff a pay rise’. This is about the size of it.”

This week chancellor Rishi Sunak announced a support package to help families through the cost of living crisis.

It includes April council tax rebates of up to £150 for people living in bands A-D and a £200 “discount” on October energy bills for all households, which will function as a loan to be paid back in £40 instalments over five years.

Analysts warned the proposals are “poorly targeted” and would not be effective enough to help low-income households avoid destitution.