Bank chief says workers who demand wage increases risk embedding inflation Andrew Bailey
Workers should refrain from demanding wage increases commensurate with inflation, according to the Bank of England governor, who has warned of the risk of inflation becoming “embedded”.
Andrew Bailey, who added that he does not expect interest rates to stabilize at pre-financial crisis levels of around 5%, declined to be preoccupied with what an appropriate wage increase would be, a day after warning that inflation would hit 13% in October. . The bank’s inflation target is 2%.
Speaking on BBC Radio 4’s Today programme, he said: “If everyone tries to beat inflation – and that is in both setting prices and wages – it won’t go down, it gets worse.” My main point is that if inflation becomes entrenched and persistent, it gets worse. And the effects are getting worse.”
The UK is engaged in a summer of strikes by workers in industries from rail and aviation to post and telecommunications, as unions try to secure increases to allow members to keep wages in line with inflation at its highest levels in 40 years.
Bailey admitted that as the UK heads into recession and high inflation, the poorest people are hardest hit by the cost of living crisis.
“In this world, the less wealthy are the most affected because they have no bargaining power,” he said. “This is something on a large scale that we all have to be very aware of.
“There are a lot of people who have been very affected by this inflation – all inflation badly affects people with low incomes – but this time especially because it is concentrated in energy and food. These are the basics of life. There is a role in society to think about the fact that there are people who do not have The same ability to offset the impact of inflation who would be hit hard by this.”
The Bank of England on Thursday made its biggest interest rate hike in 27 years in a bid to curb high inflation as gas prices drove up UK energy bills this winter. A rise of 0.5% to 1.75% takes the UK interest rate to a 13-year high and is the sixth in a row.
Bailey said the country has faced a domestic shock in the form of a contraction in the workforce over the past two years, causing widespread employment problems, as well as rising energy and food prices caused in part by the war in Ukraine as well as supplies. Chain issues due to the Covid pandemic.
We’ve had a local shock, and the workforce has shrunk over the past two years or so. I go around the country a lot; I talk to companies a lot. The first thing companies want to talk to me about is the issues they face when hiring people, and that’s still the case. They also tell us that they actually don’t have a hard time raising prices at the moment. I think this cannot continue.”
Bailey did not put a number on where he thought rates might return once inflation eased, but said he expected them to be below the 4% to 5% levels seen before the 2008 financial crisis.
“We don’t know in any quantitative term,” he said. “I don’t think that in the steady state we will go back to where we were before the financial crisis.”
Paul Johnson, director of the Center for Economic Thought at the Institute for Fiscal Studies, said the next prime minister would have to find billions to support households and key services such as the NHS.
“13 percent of inflation is an unusual number and it will have an impact on public finances,” he said. And they will have to find billions more to support families.
“This is a much bigger increase in energy bills than was expected a few months ago when the support packages were announced. And of course, more money will be needed for public services – health services, education and so on – because with an inflation rate of 13%… We are looking at potentially significant reductions in the real terms of some public services that are really struggling at the moment.”