“It is going to be a difficult period ahead, I readily admit, because we are already seeing, and we're going to see, a reduction in real income,” Bailey told the BBC.
“We're going to start coming out of it in 2023, and two years from now, we expect inflation back to a more stable position.
“Inflation, the rate at which prices are rising, is expected to peak at 7.25% in April, more than three times its target of 2%, and average close to 6% in 2022.
“This is a world of external prices rising, reducing people's real incomes,” Bailey added.
Bailey also suggested that workers should not ask for big pay rises to cope with the rising cost of living. However, this comment has come up against a wave of criticism, with the TUC calling Bailey's advice on pay restraint “ill-founded.”
Consumers on default tariffs paying by direct debit will, on average, see an increase of £693 from £1,277 to £1,971 per year. Consumers who use prepayment meters, meanwhile, can expect to see an increase of £708 from £1,309 to £2,017, on average.
The increase is set to impact around 22 million households in the UK that are on a default standard variable tariff, over which the price cap sets a limit. The new price cap, which comes into effect on April 1 and will remain in place for six months, is the highest since the cap on energy bills was introduced.
Meanwhile, across the channel, the French government is set to force state energy giant EDF to take an €8.4 billion hit to protect households from soaring energy costs by limiting bill increases to 4% this year.
On Friday, the EDF lost a fifth of its market value after the French government laid out its plan to cap rising energy bills. The government’s measures include forcing the energy giant to sell electricity generated by its fleet of nuclear reactors to rival home energy suppliers at prices significantly below the current record-high market prices.