‘Too soon’ to declare victory over inflation, bank warns as interest rates rise again

Mr Bailey said consumer prices index (CPI) inflation is expected to fall below the Bank’s 2 per cent target rate in the spring of 2024, as long as energy prices fall as expected.

It comes as energy giant Shell reported record profits again, prompting calls from Labour to increase the windfall tax, and allegations Rishi Sunak is “too weak” to take on big energy firms.

In delivering an economic update yesterday, the bank said that the UK is still headed for a recession, but stressed that the economic downturn could be shallower and shorter than previously expected.

Peak-to-trough gross domestic product (GDP) is set to shrink by 1 per cent, from around 3 per cent in an earlier forecast.

This is because wholesale energy prices have fallen significantly since the Monetary Policy Committee produced its last forecast, in November, and inflation has begun to fall from its peak last year.

The UK will suffer a recession of five consecutive quarters, starting in the first three months of 2023, it predicted.

But the decline will be much softer than in previous recessions, such as during the 2008 financial crisis. A recession is defined as at least two consecutive quarters of falling output.

GDP is expected to fall by 0.5 per cent over 2023, and by 0.25 per cent in 2024, before picking up to almost 1 per cent by 2025.

The outlook for the labour market has also improved, the MPC said.

The number of job vacancies is set to decline, and redundancies will remain low, as companies are less inclined to let staff go as quickly as they did in previous recessions, the Bank suggested.

The rate of unemployment is expected to peak at 5.25 per cent, lower than the 6.5 per cent that was previously forecast.

Meanwhile the Trades Union Congress (TUC) said an increased windfall tax on firms such as Shell could help fund wage rises for the public sector workers and end deadlocked industrial action.

The Government is not considering such a move, Downing Street indicated, with the Prime Minister’s spokesman telling reporters he was “not aware of any plans for that”.

Shell recorded the highest profit in its 115-year history as it benefited from soaring energy prices driven by Russian President Vladimir Putin’s invasion of Ukraine.

It said that core profits rocketed to 84.3 billion dollars (£68.1 billion) in 2022, surpassing the expectations of industry experts.

Shell said it paid 1.9 billion dollars (£1.5 billion) in windfall tax charges to the UK and EU.

Shadow climate change secretary Ed Miliband said: “As the British people face an energy price hike of 40 per cent in April, the Government is letting the fossil fuel companies making bumper profits off the hook with their refusal to implement a proper windfall tax.”