The Bank of England governor has recommended workers not to demand pay raises as the country battles decades-high inflation, and wage increases as such could result in a wage-price spiral that will end up hurting the economy even more.
“I’m not saying nobody gets a pay rise, don’t get me wrong, but I think, what I am saying, is we do need to see restraint in pay bargaining otherwise it will get out of control,” Governor Andrew Bailey told BBC 4 radio in an interview broadcast on Friday.
As Britain faces inflationary pressures not seen in 30 years, the central bank has increased interest rates from 0.25 percent to 0.50 percent. According to estimates, inflation is set on course to cross 7 percent in 2022, which will have a significantly adverse effect on disposable income.
The governor’s logic points to a situation where business costs of higher wages would be passed on to consumers by companies through higher prices, initiating a spiral that would spur on inflation to higher reaches. But, if left alone, Bailey said in an interview with Sky News that the price pressures would “correct.”
Consumer price inflation was 5.4 percent in December 2021, and half of the policymakers were looking for a higher rate of interest, around 0.75 percent. This is the second time in two months that the Bank of England is hiking the rate.
The inflation rate is predicted to reach 7.25 percent in April before settling down. Post-tax incomes for working households is anticipated to fall 2 percent in 2022 resulting in revenue squeezes and living costs not seen since 1990.
Bailey said that the wage situation was “painful. But we need to see that in order to get through this problem more quickly.”
UK households are already battling expensive energy prices as Ofgem, the UK energy regulator, has approved a record 54 percent rise to its price cap. This is expected to impact around 22 million households in the region.
The British government announced on Thursday that it would provide a series of financial support measures to reduce the effect of rate hikes and support people with bill discounts.
Bailey’s comments have drawn ire from the public and political figures who have pointed fingers at the governor’s relatively high pay.
“Bank of England Governor Andrew Bailey, who’s on £575,000, says people shouldn’t ask for big pay rises. Tell that to those who can’t pay their bills or are skipping meals to feed their kids. Many workers haven’t had a real terms pay rise since 2010,” wrote Labour Member of Parliament for Nottingham East, Nadia Whittome, on Twitter.