The Bank of England Governor has warned that Britain faces a faster and steeper downturn than other rich countries as households are battered by a “very large national real income shock”.
Andrew Bailey said the UK economy is at a “turning point” after Covid, the energy price surge and the war in Ukraine combined to trigger spiralling inflation and the worst drop in disposable incomes for decades.
Opening the door to a bigger hike in interest rates to tame price pressures, he vowed to act “more forcefully” if painfully high inflation - forecast to hit 11pc in October - persists.
Speaking at a conference in Portugal, Mr Bailey said: “The UK economy is probably weakening rather earlier and somewhat more than others. I think that’s been somewhat evident now for a few months.”
It came as a slew of retail industry chiefs warned of a looming plunge in consumer spending in a survey shared with The Telegraph.
Stefano Pessina, the head of Boots owner Walgreens Boots Alliance, has warned Britain is heading for a worse crisis than other European countries.
Mr Pessina, whose company shelved plans to sell Boots because of market conditions this week, said: “The war in Ukraine doesn't help with its impact on the cost of oil, gas and many commodities further exacerbating the speculation around it. We will go into a recession.
“I suspect the UK will have a big recession, probably bigger than other European countries.”
The Bank of England has predicted that the economy will shrink 0.3pc in the second quarter of 2022 and contract again at the end of the year as the cost of living crisis deepens.
The UK economy is being battered by record low household confidence and a squeeze on incomes caused by inflation exceeding 9pc, the highest rate in 40 years.
During a panel session at the European Central Bank’s conference in Sintra, Portugal, Mr Bailey said: "We are being hit by a very large national real income shock, which is coming from outside.
“The scale of the shock is very substantial and in and of itself it will have an effect, a big effect, because it will reduce domestic demand and it will pass through into the labour market and it will pass through into inflation."
He added: “When I look at the UK economy at the moment, it's very clear that the economy is now starting to slow. We are at something of a turning point in that respect.”
The Bank expects inflation, which is being driven by soaring energy and food costs, to hit 11pc in October when another jump in the energy price cap is expected to increase family bills.
It came as the Bank of England’s newest rate-setter, Swati Dhingra, said that recent data suggests the UK’s slowdown is “much more imminent than we thought before”.
In written evidence to Parliament’s Treasury Committee, Ms Dhingra, a Brexit critic, said: “The UK has done worse than other G7 nations in terms of consumer confidence and inflation.
“Many of the sources of these problems are expected to continue or even accelerate in the short term, such as global factors (including Covid lockdowns, geopolitical uncertainty) and their knock-on effects on to domestic prices.”
She also told MPs that the Bank should take a “very gradual” approach to increasing interest rates and claimed that the UK’s exit from the European Union has caused a 3pc increase in food prices.
Rate-setters across the world are increasing interest rates rapidly in a bid to reduce inflationary pressures before they run out of control.
Mr Bailey said that there are “circumstances in which we will have to do more” on tightening policy faster even after a string of back-to-back interest rate rises.
He and other top central bankers warned in Portugal that the world is moving out of the era of low and benign inflation from before the pandemic.
Christine Lagarde, president of the European Central Bank, said: “I don't think that we're going to go back to that environment of low inflation and I think that there are forces that have been unleashed as a result of the pandemic, as a result of this massive geopolitical shock that we're facing now that are going to change the picture.”
Jerome Powell, chairman of the US Federal Reserve, said the global economy is emerging from a period where “inflation was really not a problem” and has been “driven by very different forces” since Covid.
The annual survey of retail chairmen by Korn Ferry, a consultant, revealed that 95pc expect a tumble in consumer spending as bosses struck a gloomy tone on the industry’s outlook.
Mike Roney, chairman of Next, said: “I am very cautious in the medium term because of interest rates, energy prices, inflation and the geopolitical uncertainty with Russia/Ukraine.”
Richard Pennycook, chairman of Howdens Joinery, said he is “pretty anxious” for the second half of 2022 as up to half of Britons “are going to see a real squeeze in their disposable incomes”. WHSmith chair Henry Staunton added that the “big concern is consumer confidence” after the squeeze on incomes from energy and fuel costs.