Britons should brace themselves for a year of hardship, warns Bank of England deputy chief

Britons were warned last night to brace themselves for falling living standards for the next 12 months.

Charlie Bean, new deputy governor of the Bank of England, said rising oil prices would put the economy under further strain, prolonging the misery for consumers.

His comments come as oil prices reached a record high today.

Mr Bean appealed to workers not to push for higher wages in the wake of rising inflation levels, which he blamed on 'the most challenging set of circumstances since at least the early 1990s and possibly earlier'.

Mr Bean was appearing in front of the Treasury select committee to mark his recent appointment into the post from the position of Bank of England chief economist.

He described the rise in oil prices as 'relentless', adding: 'I don't think one can discount the possibility that oil prices will continue to rise for a while.

'Part of the reason the oil price has risen so much recently is that those extra sources of supply haven't come on stream as rapidly as one would hope.

'So it is perfectly reasonable to expect that if the demand for oil continues to rise in the way that it has done over the last few years, that the oil price may continue to rise over the next year or two.'

Oil prices are already at a high of around $150 a barrel. This has led to increasing petrol costs, with consumers being warned to expect prices of more than £1.40 a litre within weeks.

But higher oil prices also have a wider effect - pushing up the cost of commuting, keeping the lights on, putting food on the table and taking a holiday.

Already, food prices have risen by 19 per cent in a year, according to the Daily Mail's Cost of Living Index; and experts are warning that fuel bills could shoot by by almost 50 per cent during 2008.

Motorists can expect more price rises at the petrol pumps for the next two years

Mr Bean said the UK was facing 'the most challenging set of circumstances since at least the early 1990s and possibly earlier, with higher inflation the result of global factors'.

'As a nation, it means that our living standards will be lower than they would otherwise be,' he warned.

'Real living standards will have to grow less rapidly this year, and possibly part of next year, than was the case in the late 1990s and early 2000s.

'There is not very much that we can do about that as a nation unless we improve our productivity to offset it.'

He added that there was a danger of a pay-rise spiral developing if workers tried to compensate by pushing up wages.

'It certainly poses a significant challenge. There is no doubt about that at all,' he said.

'It may be a relatively unlikely event but it could be particularly unfortunate if it happened, if households and businesses start losing faith in the idea that inflation will stay low, round about the target, they start building it into their pay and prices and inflation becomes much more embedded into the system.'

He said he hoped any upswing in inflation would be short-term, but he warned that the longer oil prices continue to rise, the more difficult it would be to hold down pay pressures.

'It is easier to persuade people to accept a year of relatively low growth, or even cuts in their real incomes if it is for a year or a relatively short period,' he said. 'But if it is for a number of years running, clearly that is a much tougher climate.'