The governor of the Bank of England has warned that large wage and price rises that reflect surging inflation risk embedding rising costs in the economy that will result in “slow activity and increased unemployment”.
Andrew Bailey told the Treasury committee of MPs that the so-called second round effects of the energy-led rise in living costs were his “biggest concern” and, if realised, would hurt the least well-off the most and lead to even higher interest rates.
However, his calls for wage restraint were met with fury by unions who accused him of representing fat cat bosses rather than ordinary workers.
The Bank used the publication of its Monetary Policy Report earlier this month to declare that the fastest slump in living standards on record was on the way.
0:38 3 Feb: Governor explains ‘very big shock’ from inflationThe rate of inflation, already at its highest level for almost 30 years at 5.5%, is tipped by the Bank to hit 7.25% in April when the energy price cap is lifted, with bills expected to rise by an average of almost £700 to account for unprecedented increases in wholesale gas costs.
AdvertisementThe Bank, which cannot control external price shocks, has raised the base rate of interest twice in a bid to counter early evidence that wage growth was picking up fast and risked fuelling the inflation problem into 2023 and beyond.
Mr Bailey, who had urged pay restraint earlier this month, clarified that he was not saying people should not get pay rises after Labour’s Angela Eagle forced the governor to acknowledge that his own wage was above 500k a year.
More on Bank Of England Related Topics: Bank Of EnglandCost of livingHe told the committee he wanted to avoid big wage increases that contributed to further inflationary pressures.
The governor made his remarks after chancellor Rishi Sunak told Sky News it was not his business to dictate what private companies awarded their staff.
2:35 ‘Wage rises not my business’‘Please reflect on the situation’
Mr Bailey told MPs: “It’s not just wage setting, it’s also price setting… it’s both.
“There is very clearly an upside risk there. The upside risk… comes through from the second-round effects.”
He agreed those included corporate margins, basic pay, executive pay and bonus levels and added: “It’s a very harsh message.”
But he admitted: “I can’t dictate how people go about this, of course I can’t… Please reflect on the economic situation we’re in with this big economic shock coming.
“The least well-off will come off worse in this process if we don’t have… restraint,” he explained.
Unions, which have urged employers to help workers navigate surging inflation through improved pay, dismissed his economic argument.
“Andrew Bailey blew a hole in the @bankofengland‘s pretence to be neutral when he targeted workers’ pay instead of company bosses and inflated profits… Workers didn’t cause galloping inflation so why should they pay for it?” @UniteSharon #CostOfLiving https://t.co/hbVceScRYU
— Unite the union: join a union (@unitetheunion) February 23, 2022Unite’s general secretary, Sharon Graham, said: “Andrew Bailey blew a hole in the Bank of England’s pretence to be neutral when he targeted workers’ pay packets instead of company bosses and inflated profits.
“Andrew Bailey has made it clear whose side he’s on. Following the last financial crisis workers experienced the longest stagnation of wages since the Napoleonic wars. Now he wants this to continue against a background of soaring inflation, even while big bosses line their pockets.
“Workers didn’t cause galloping inflation or the energy crisis so why should they pay for it?
“Unite will always seek pay deals that reflect the true cost of living because anything else is a wage cut.”