Two top Bank of England (BOE) officials today recommended that wage increases be curbed to curb rising inflation which has risen to a 30 -year high after raising interest rates.
Governor Andrew Bailey said rising wage pressure could hamper the BoE’s ability to cope with rising inflation. Bailey generally stated, “We need to look at constraints in wage bargaining otherwise it will lose control”.
The impact of inflation on living standards poses a major challenge to the government of Prime Minister Boris Johnson, who is also currently facing criticism. Finance Minister Rishi Sunak announced measures to mitigate the impact of a 54% jump in energy costs last April, when higher social security contributions also affected living standards.
BoE Chief Economist Huw Pill was also among those who supported Bailey’s view on the matter that wage increases should be curbed.
On Thursday the BoE raised borrowing costs for the second time in two months, bringing its Bank Rate to 0.5%. Nearly half of policymakers want a larger increase to 0.75%.
The BoE reported consumer price inflation at 5.4% for December and is expected to be set to hit around 7.25% in April following soaring energy costs before declining, and after -tax income for working households will fall by 2% this year.
Bailey said the BoE faces a “very difficult balance” to navigate the economy between falling living standards and the struggle to bring down inflation. The BoE on Thursday marked another modest tightening "in the next few months."
Investors on the other hand on Friday expected an increase in borrowing costs at the next BoE meeting with futures rates showing the Bank Rate hitting 1.0% by May and almost 1.5% by August.
