Bank of England responds to cost of living crisis

Mauricio Armellini and his team at the Bank of England's North East base work with people and businesses across County Durham, Northumberland, North Cumbria, Teesside and Tyne & Wear to understand their problems and help them grow, with regular business panel discussions in Newcastle, Durham and Teesside.

We asked them to answer our readers Facebook questions and try to offer some hope as the crisis threatens to dominate the rest of the year at least.

From Tom Griffiths:  Why do you think making mortgages and paying debts more expensive is a good thing for those really struggling with the cost of living?

Bank of England: Inflation is already over 10% a year. Our job is to get it back down to our 2% target. Raising interest rates stops prices rising so fast. We know that higher rates will be hard for some people. But it’s better for everyone in the long term to have low and stable inflation. We need to raise rates to achieve that. Otherwise, there is a high risk that the problem will get worse.

Read more: How the Bank of England is helping with the cost of living

David Collinge: Why are you putting up interest rates when the essence of the current inflation is ‘cost push’? There is little evidence of ‘demand pull ‘dynamics going on.

Bank of England: It is true that the main factor pushing up inflation at the moment is coming from increased energy costs, driving by Russia’s invasion of Ukraine. But there is a risk that higher inflation gets embedded in the economy and prices set here in the UK go up too. We need to put up interest rates to stop that happening.

Sally Stepanyan: How are people supposed to survive when energy bills are 40% of their income?

Bank of England: We know this is worrying for lots of people. We talk to a lot of householders directly, and to charities supporting them, and hear these concerns loud and clear. The impact of the Russian invasion on gas bills has been enormous. Things will get better. We expect inflation to begin to ease off at the beginning of next year. It’s our job to make sure it falls back to the 2% target, and that’s what we are going to do, no ifs, no buts.

Jdr Fouronesix: Inflation is the result of printing money with nothing to back it (Quantitative Easing). You create money out of thin air and we are left to pick up the tab. Why?

Bank of England: Quantitative Easing was first introduced over a decade ago to support the economy at a time of crisis and to prevent inflation from going too low. So, in effect, QE did create some inflation, but that is what it was designed to do. It also saved a lot of people from losing their jobs. The vast majority of the inflation we are experiencing now is driven by the massive increases in gas prices following Russia’s invasion of Ukraine.

Colin Wills​: The UK media is giving the impression that it's only us that are suffering high inflation and high energy prices. How is the rest of the world being affected, and how are their governments managing it?

Bank of England: It’s not for us to comment on government policy, here or abroad, but it is true that high gas prices, brought about by Russia’s invasion of Ukraine are affecting countries other than the UK. Central banks across the world are considering how to tackle high inflation and how to stop prices rising indefinitely. Many of them have been taking similar measures to the Bank of England and have been raising interest rates.

You can read more about what the Bank of England is doing to combat high inflation by visiting www.bankofengland.co.uk/cost-of-living

Read next:

• North East foodbanks say people are 'crying' in queues
• Cost of living crisis: Students could quit courses without help say universities
• Business leaders call for action from new PM Liz Truss