Rocketing energy bills ‘to hit growth’

In its quarterly inflation report, the Bank warned inflation will fall back later than previously expected in 2013.

It warned energy bills could surge as much as 15 per cent this year, far ahead of its previous expectations, piling pressure on the cost of living and dampening growth.

Bank governor Mervyn King said the soft patch in growth will be temporary but the recovery will hinge on business investment and exports. He warned the squeeze on household budgets may have further to go.

It is the fourth time the Bank has downgraded its growth forecast in the year since the coalition Government was formed.

The report reopened the debate over the severity of Chancellor George Osborne’s austerity measures and the ability of the economy to withstand the cuts.

Shadow Treasury chief secretary Angela Eagle said: “Cutting too deep and too fast, as this Conservative-led Government is doing, is a vicious circle.”

The Bank downgraded its expectations for gross domestic product in 2011 to around 1.7 per cent, from about two per cent in its February report. In 2012, GDP is expected to be around 2.2 per cent, from just under three per cent.

The rate of inflation, currently at four per cent, is now expected to hit five per cent this year and remain above the Government’s two per cent target throughout 2012 before falling back – but only if interest rates rise in line with market expectations from the third quarter of 2011.