Bank of England governor Andrew Bailey has implored workers not to ask for significant pay rises in a bid to tackle high inflation.
In an interview regarding the Bank’s decision to raise interest rates to 0.5% yesterday (3 February), Bailey said it was important to ensure that “there isn’t more inflation pressure domestically”.
“That would come for instance from things like wage bargaining,” he added.
In another interview for the BBC, he said there needed to be “a moderation of pay rises”, adding that this was a “painful” message.
Inflation hit a 30-year high of 5.4% in the 12 months to December 2021, as measured by the consumer prices index (CPI). It is on course to rise above 7% this year.
Weekly earnings, meanwhile, rose by 3.8% in the three months to November compared with the same quarter in 2020, according to the Office for National Statistics.
This means workers suffered a real-terms pay cut of more than 1% as the higher cost of living wiped out any increase in pay.
Furthermore, new figures from Incomes Data Research suggest that around half of pay awards will be worth 3% or more in 2022.
While this is a solid rise on last year’s median of 2%, these awards are still below-inflation pay increases.
A Downing Street spokesperson claimed that prime minister Boris John disagreed with Bailey’s comments, saying:
“It’s not something that the Prime Minister is calling for. We obviously want a high-growth economy and we want people’s wages to increase.
“We recognise the challenge of the economic picture which Andrew Bailey set out but it’s not up for the Government to set wages or advise the strategic direction or management of private companies.”
Consumers received a further blow this week as the government announced it would increase the energy price cap by 54%, meaning many households will see gas and electricity bills rise by between £700 and £2,000 a year.
Chancellor Rishi Sunak launched a £350 support package to give households money off their bills, but this money needs to be repaid over five years. There will also be a £150 council tax discount for those between bands A and D.
Frances O’Grady, general secretary of the TUC, called the support from the Treasury “hopelessly inadequate”.
“It will give most households just £7 per week and over half of that will have to be paid back,” she said.
“We need a proper plan to help families get through the months ahead – not stop-gap measures.”