British economy set for 'historic shock'

The chief of Britain's central bank has warned that surging energy prices this year would have more impact on incomes in the United Kingdom than the oil crisis of the 1970s.

Andrew Bailey, the governor of the Bank of England, or BoE, said a "historic shock" will hit the economy as a consequence of the surge in oil and gas prices caused by the conflict in Ukraine.

Speaking at an event in Brussels, Bailey said: "The shock from energy prices this year will be larger than every single year in the 1970s.

"The caveat is that the 1970s had a succession of years and we very much hope that would not be the case now. But as a single year, this is a very, very big shock."

UK inflation surged in the 1970s when Arab oil producers imposed an embargo on countries that had supported Israel in the Yom Kippur war, noted the Financial Times.

A comparable impact lies ahead for the UK and the eurozone, said Bailey, as both relied on the same energy market.

He said Britons faced a "very large shock to aggregate real income and spending" as the cost of energy and imported products surges.

The BoE has said inflation could rise to about 8 percent in the second quarter of this year and potentially even higher when regulated energy prices increase further in October.

UK inflation reached a three-decade high of 6.2 percent last month, which is the highest level seen since March 1992.

The Office for Budget Responsibility, or OBR, last week said living standards would experience a record fall as inflation cuts disposable incomes by 2.2 percent in the financial year ahead.

The OBR has cut its UK growth forecast for 2022 from 6 percent to 3.8 percent, and described the imminent hit as "the biggest fall in living standards since at least the 1950s", predicting that inflation will hit 8.7 percent and energy bills would surge by 830 pounds ($1,085) per year.

Bailey said: "We expect it to cause growth and demand to slow. We are beginning to see the evidence of that in both consumer and business surveys. "

Chancellor of the Exchequer Rishi Sunak has said he will only offer financial support for energy bills "if necessary", citing the "volatility" of energy prices, reported The Times.

The UK's energy price cap is set to rise from about 1,300 pounds per year to nearly 2,000 on Friday.

Speaking to a Treasury select committee on Monday, Sunak said: "None of us know what the price cap is going to be in the autumn. That is incredibly volatile."

"We will continue to monitor the situation and, as we know more, are prepared to act if necessary," he added.