Bank of England warns: 'There's NOTHING we can do to stop the pain of prices soaring'

The Bank of England has warned it can do nothing to alleviate the pain of rapidly rising prices over the coming months. 

Governor Mervyn King signalled living standards will continue to be squeezed by inflation-busting increases on food and fuel well into 2009. 

Attempting to curb the rampant price increases by raising interest rates sharply could lead to an even more painful economic downturn, he said. 

Mr King made the comments in the Bank's annual report amid new evidence that the pressure on incomes is intensifying. 

The cost of products leaving UK factories rose 10 per cent in the year to June - the first double-digit increase recorded by the Office for National Statistics for 20 years. Food costs rose by 11.8 per cent, while prices for petroleum products rose by 34.2 per cent, the report showed - the largest increases on record. 

These are likely to feed into the prices paid by shoppers on the High Street, exacerbating Britain's inflation problem and the misery being felt by families. 

Gordon Brown said the recent rise in oil and food prices, coupled with the credit crunch, had caused 'unprecedented' problems around the world. 

The Prime Minister admitted families are feeling the pain of soaring costs 'every time they go to the petrol station or the supermarket'. 

He said the Government is considering taking steps to help families cope with the
rising cost of living, but declined to give any detail. 'We have a responsibility to help people through these difficult times, and yes we will consider extra measures,' Mr Brown said. 

Economists expect official figures today to show that the consumer prices index rose an annual 3.6 per cent in June. 

That would be the highest inflation reading since the summer of 1992, and well above the three per cent limit tolerated by the Bank of England.

But the Daily Mail's Cost of Living Index suggests the pain is even more acute for families across the country. 

The cost of a basket of key products soared an annual 17.8 per cent in July, the index shows. A household which spent £100 a week on food last year now needs to find another £18 a week, or £936 a year.

Meanwhile the annual average cost of driving a diesel car has surged by around £365, while the cost of heat and light is up by just over 14 per cent - £131 a year - taking it to £1,056. 

Mr King said he expects to have to write a series of explanatory letters to Chancellor Alistair Darling over the coming months as inflation repeatedly breaches the Bank's target. 

But he added that the Bank has been avoiding swingeing interest rate rises because this could drive the economy into an even steeper slowdown. 

Mr King said: 'We are now faced for the second time in less than two years with the prospect of a sharp, but temporary, rise in inflation, this time mainly from the impact of energy and food price rises. 

'In fact, it is likely that inflation will remain above three per cent until well into next year. 

'The Monetary Policy Committee can have little impact on the path of inflation in the short term. 

'It has not attempted to prevent inflation moving away from the target following the sharp rises in commodity prices. 

'To do so would have required a large increase in interest rates, with such a severe impact on output and employment that it would have risked inflation falling well below target further out.' 

Large rises in borrowing costs would also pile on the pain in the housing market, which is already heading for its worst slump in decades. continues here

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