Three more years of struggling: Bank governor issues grim warning to families

 

Families were today warned that that the squeeze on their living standards will last for at least three more years.

The Governor of the Bank of England Sir Mervyn King said there was little sign of respite before 2016. Wages are stagnating while inflation is staying “stubbornly” high, fuelled by rising food, transport and utility bills.

New official figures show that the financial crisis has already sent living standards back to those last seen in 2003 - the first time on record that real wages have dropped so far.

The Governor also suggested that efforts to kick-start economic growth through relaxing austerity measures were almost certainly “doomed to defeat”. But he offered a glimmer of hope that economic recovery was “in sight”.

In a new forecast the Bank said that inflation was now expected to rise to 3 per cent this year as a series of “own goals”, such as above inflation train fare increases, eat into household budgets. The renewed weakness of sterling is also expected to feed through into higher shop prices.

The Governor said it was not possible to give a “definitive prediction” on when the squeeze on incomes, which began in 2009, would come to an end.

Sir Mervyn, who steps down to make way for Canadian Mark Carney in July, did little to hide the reality of a further grim slog for the economy over the coming years before any  chance of a full recovery. He said: “The prospect of a further prolonged period of above-target inflation must therefore be considered alongside the weakness of the real economy.

“Attempting to bring inflation back to target sooner would risk derailing the recovery and undershooting the target in the medium term.”

Economic growth will return in a “slow but sustained recovery” he said, but with the risk that it could be halted by a return to chaos in the eurozone. The level of GDP is not expected to return to levels seen before the collapse of Lehman Brothers until 2015.

Sir Mervyn added: “The UK recovery is set for a recovery but that is not to say the road ahead will be smooth. This has not been a normal recession and it will not be a normal recovery.”

The stark forecast is a blow to George Osborne as it means millions of families will be seeing their living standards continue to fall at the time of the 2015 election. The Chancellor was in  Eastleigh today visiting a factory in the run-up to the by-election.

TUC general secretary Frances O’Grady said: “Official figures now confirm what everyone knows. Living standards have been falling for the vast majority, and there is no sign of change. But on top of the wage squeeze, the Government has been making it worse with cuts to tax credits, the freeze in child benefit and a VAT hike.

“Millions of low-income families —both in and out of work — are now threatened. The cost of living goes ever upwards with the costs of essentials such as food, fuel and energy continuing to increase.” A Labour spokesperson said: “The Government’s failing economic policies and unfair choices are making things worse not better.

“Our flatlining economy means wages and living standards are being squeezed.”

Evening Standard

Start your day with The Independent, sign up for daily news emails
News
news
New Articles
tvDownton Abbey Christmas special
Arts and Entertainment
Wolf (Nathan McMullen), Ian (Dan Starky), The Doctor (Peter Capaldi), Clara (Jenna Coleman), Santa Claus (Nick Frost) in the Doctor Who Christmas Special (BBC/Photographer: David Venni)
tvOur review of the Doctor Who Christmas Special
News
peopleIt seems you can't silence Katie Hopkins, even on Christmas Day...
PROMOTED VIDEO
News
i100
Arts and Entertainment
Jenna Coleman as Clara Oswald in the Doctor Who Christmas special
tvForget the rumours that Clara Oswald would be quitting the Tardis
Arts and Entertainment
Japanese artist Megumi Igarashi showing a small mascot shaped like a vagina
art
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Life and Style
fashion
Arts and Entertainment
Left to right: Stanley Tucci, Sophie Grabol and Christopher Eccleston in ‘Fortitude’
tvSo Sky Atlantic arrived in Iceland to film their new and supposedly snow-bound series 'Fortitude'...
Arts and Entertainment
tv
News
The Queen delivers her Christmas message
newsTwitter reacts to Her Majesty's Christmas Message
Sport
sport
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Selby Jennings: Oil Operations

Highly Competitive: Selby Jennings: Our client, a leading European Oil trading...

The Jenrick Group: Night Shift Operations Manager

£43500 per annum + pension + holidays: The Jenrick Group: Night Shift Operatio...

SThree: Trainee Recruitment Consultant - LONDON

£20000 - £25000 per annum + OTE £40,000 + Car + Pension: SThree: SThree are a ...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £35K: SThree: We consistently strive to be the...

Day In a Page

A Christmas without hope: Fears grow in Gaza that the conflict with Israel will soon reignite

Christmas without hope

Gaza fears grow that conflict with Israel will soon reignite
After 150 years, you can finally visit the grisliest museum in the country

The 'Black Museum'

After 150 years, you can finally visit Britain's grisliest museum
No ho-ho-hos with Nick Frost's badass Santa

No ho-ho-hos with Nick Frost's badass Santa

Doctor Who Christmas Special TV review
Chilly Christmas: Swimmers take festive dip for charity

Chilly Christmas

Swimmers dive into freezing British waters for charity
Veterans' hostel 'overwhelmed by kindness' for festive dinner

Homeless Veterans appeal

In 2010, Sgt Gary Jamieson stepped on an IED in Afghanistan and lost his legs and an arm. He reveals what, and who, helped him to make a remarkable recovery
Isis in Iraq: Yazidi girls killing themselves to escape rape and imprisonment by militants

'Jilan killed herself in the bathroom. She cut her wrists and hanged herself'

Yazidi girls killing themselves to escape rape and imprisonment
Ed Balls interview: 'If I think about the deficit when I'm playing the piano, it all goes wrong'

Ed Balls interview

'If I think about the deficit when I'm playing the piano, it all goes wrong'
He's behind you, dude!

US stars in UK panto

From David Hasselhoff to Jerry Hall
Grace Dent's Christmas Quiz: What are you – a festive curmudgeon or top of the tree?

Grace Dent's Christmas Quiz

What are you – a festive curmudgeon or top of the tree?
Nasa planning to build cloud cities in airships above Venus

Nasa planning to build cloud cities in airships above Venus

Planet’s surface is inhospitable to humans but 30 miles above it is almost perfect
Surrounded by high-rise flats is a little house filled with Lebanon’s history - clocks, rifles, frogmen’s uniforms and colonial helmets

Clocks, rifles, swords, frogmen’s uniforms

Surrounded by high-rise flats is a little house filled with Lebanon’s history
Return to Gaza: Four months on, the wounds left by Israel's bombardment have not yet healed

Four months after the bombardment, Gaza’s wounds are yet to heal

Kim Sengupta is reunited with a man whose plight mirrors the suffering of the Palestinian people
Gastric surgery: Is it really the answer to the UK's obesity epidemic?

Is gastric surgery really the answer to the UK's obesity epidemic?

Critics argue that it’s crazy to operate on healthy people just to stop them eating
Homeless Veterans appeal: Christmas charity auction Part 2 - now LIVE

Homeless Veterans appeal: Christmas charity auction

Bid on original art, or trips of a lifetime to Africa or the 'Corrie' set, and help Homeless Veterans
Pantomime rings the changes to welcome autistic theatre-goers

Autism-friendly theatre

Pantomime leads the pack in quest to welcome all