Bank of England Governor Andrew Bailey said on Monday that the shock to inflation-adjusted incomes in Britain from rising energy prices will be bigger than in any year in the 1970s.
“This really is an historic shock to real incomes,” Mr Bailey said at an event held by the Bruegel think tank in Brussels.
“The shock from energy prices this year will be larger than every single year in the 1970s.
Oil and gas prices have surged following the invasion of Ukraine with western nations pledging to wean themselves off Russian energy in response to the crisis.
Soaring energy costs have led to increased inflation in many developed nations, with the cost of living in the UK and US surging to levels not seen for more than three decades.
During the event, Mr Bailey also said that huge swings in commodity prices mean resilience in financial markets cannot be taken for granted and central bodies and authorities are watching the situation very closely.
“Liquidity conditions have deteriorated in many commodity markets, margining costs have risen, which is of course a reflection of much higher volatility and risks in these markets,” he said.
“We can't take resilience in particularly in that part of the market for granted. There's a strong need to work together on this,” he said, adding that there was very good evidence of the Financial Stability Board doing that.
On monetary policy, Mr Bailey largely stuck to the tone of the debate from this month's interest rate announcement in which officials softened their language on the need for further rate hikes because of rising uncertainty.
Mr Bailey said the BoE had started to see evidence of an economic slowdown in business and consumer surveys.
Asked about a possible rate hike by the BoE at its next scheduled meeting in May, he said the situation was very volatile after Russia's invasion of Ukraine propelled energy prices higher.
He also said the risks for inflation were two-sided, meaning it could slow or accelerate more than the BoE has forecast.