by Our Industrial Reporter @TrinderMatt

BRITAIN faces the longest recession since the 2008 financial crisis as the rate of inflation peaks at more than 13 per cent, the Bank of England warned today.

Governor Andrew Bailey, who is subject to few democratic checks and balances after Tony Blair’s New Labour government made the bank independent in 1997, imposed the biggest hike in interest rates in a generation “to tackle runaway inflation.”

The increase, from 1.25 per cent to 1.75, the greatest single rise since 1995, comes despite fears that it could tip the economy into another recession by making mortgages and loans more expensive to pay off.

Mr Bailey claimed to have “huge sympathy for those struggling,” despite telling working-class people earlier this year to show “restraint” in seeking real-terms pay rises. 

The consumer prices index rate of inflation, already at a four-decade high, is due to hit a crippling 13.3 per cent in October, predicted the bank, which pinned the blame on skyrocketing energy bills following the start of Russia’s invasion of Ukraine in February.

Gas prices shot up by nearly a third in the last week of July to reach the highest average level since mid March, according to data published today.

The Office for National Statistics said that the National Grid saw the median gas price increase by 31 per cent to 9.8p per kilowatt hour over the week to last Friday.

Typical households will be paying almost £300 a month for their energy by October, warned the bank, which said real household incomes are likely to drop for two years in a row — by 1.5 per cent this year and 2.25 per cent in 2023 — for the first time since records began in the 1960s.

Labour’s shadow chief secretary to the Treasury Pat McFadden blamed 12 years of “economic mismanagement by the Conservatives” for leaving hard-working families exposed.

 “Not only is this the highest rate increase in 25 years, but inflation could hit 13 per cent while real wages fall, pushing more and more families into financial difficulty,” he added.

“The government must act fast if we are going to avoid one of the worst recessions since the 1990s by scrapping tax breaks on oil and gas producers and providing more help to people who are struggling to pay their energy bills.”

The call came as Ofgem received condemnation for taking the “simply inhumane” decision to alter the energy price cap – the maximum amount suppliers can charge their customers in England, Scotland and Wales – more frequently.

Unions demanded “radical government action to avoid horrific price hikes” after the energy regulator confirmed rumours that it would allow household energy bills to change every three months, rather than every six months at present.

The next price cap rise, due in October, will now be followed by a further increase on January 1, just after Christmas, when experts predict annual gas and electricity prices could hit £3,615.

Ofgem acknowledged customers “face a deeply worrying and very challenging winter ahead,” but it claimed its new timetable would provide more stability for suppliers, who will be able to pass on any price falls to customers more quickly.

However, campaigners argued that the decision was “nothing to do with protecting consumers, but everything to do with protecting the profits of energy firms who have to ‘hedge’ buying of energy,” as prices are likely to remain high until at least 2024.

End Fuel Poverty Coalition co-ordinator Simon Francis said: “Households will face a two-stage cost of living crisis this winter.  

“Ultimately, this decision will force more people into fuel poverty in the middle of winter, causing additional stress on the NHS and it may ultimately lead to increased levels of excess winter deaths — it is simply inhumane.

“It’s clear that the government and the Conservative Party leadership hopefuls just don’t get the scale of the problem facing the country, nor the public anger at rising bills. They are running out of time to act.

“Only a full programme of emergency financial support, a rapid expansion of energy efficiency programmes and a commitment to bringing more cheap renewable energy on stream will help people stay warm this winter and into the future.”

Peter Smith of National Energy Action said Ofgem’s move “wasn’t necessary and unfortunately means further significant price increases in January are inevitable.

“January is also usually a time of increased mental health problems and further hikes in bills will sadly lead to increased misery and huge anxiety for energy consumers across Britain, particularly for the poorest households.”

Matt Lay, head of energy at public-service union Unison, called on the government, which has promised a £400 grant to households to help cover energy bills, to “stop pretending it's done enough.

“Support for consumers has so far been pitiful,” he charged. “Other European governments have been both swifter and bolder to lessen the blows from big bills.

“Swift and radical government action is needed to cap the horrific price hikes predicted. Otherwise, there will be a crisis of unimaginable proportions.”

GMB national secretary Andy Prendergast backed the call, saying: “As prices rise, the government must shoulder responsibility for its failure to tackle the difficult questions over gas storage and investment in new nuclear.

“This announcement will lead to real worry that those just about managing will be tipped over the edge.”

Shadow energy minister Alan Whitehead accused Tory leadership candidates Rishi Sunak and Liz Truss of “retreating ever further into their fantasy world, ignorant or uninterested in the struggles that families across the country are facing.

“Meanwhile, they are blocking new onshore wind and solar, the cheapest, cleanest, quickest forms of energy we have, whilst refusing to insulate homes to cut bills for good.”

He claimed that Labour had a plan to “insulate millions of draughty homes and kick-start a green energy sprint to cut bills and ensure our energy security.”