Don’t ask for big wage increases proposed by Bank of England governor as he battles rising inflation | Business News

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Bank of England Governor Andrew Bailey has suggested that workers should not demand big wage increases while the Bank is battling rising inflation.

The bank worked to combat acceleration of price growth by raising interest rates to 0.5%.

But if employees demand a wage increase to match the cost of living, their task may become more difficult.

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0:38 Bank governor explains ‘very big shock’ from inflation

This is due to the risk that employers will then pass on higher wage costs to consumers in the form of prices, creating an inflationary spiral.

In an interview after the bank’s interest rate decision, Bailey told Sky News that the bank believed some of the price pressures driving inflation would be “corrected”.

But he added: “What we have to do is to ensure that there is no more inflationary pressure at the moment.

“It might come, for example, from things like wage bargaining.”

In a separate interview, asked if the bank was actually asking workers not to demand large wage increases, he told the BBC: “Overall, yes – in the sense of saying: we need to see moderation in wage increases. It hurts – I don’t want to anyway. It’s hard for me to talk about this message, it hurts.”

“I’m not saying ‘don’t give your employees a raise’ – that’s how big it is,” Bailey told the BBC’s Today programme.

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1:37 “We are facing a real cost of living crisis”

The message comes at a time when inflation is already beginning to outpace wage growth, implying a real cut in workers’ wages.

This pressure appears to get worse over the coming months as energy bills for millions of households rise by a typical £693 in the spring as National Insurance rises.

Price pressures were seen across the board with the cost of the supermarket store also rising.

Consumer price inflation hit 5.4% in December, its highest since 1992, and the Bank of England now believes it is set to rise beyond 7%.

It all adds up to what the bank now expects will be the biggest drop in living standards since comparable records began three decades ago.

Raising interest rates at the bank is adding to that pressure by increasing borrowing costs, with a direct impact on two million homeowners with variable rates for mortgages.

At a press conference after this week’s rate hike, Bailey said, “We didn’t raise rates today because the economy is flipping away. An increase in the bank rate is necessary because inflation is unlikely to return to target without it.”

Faced with the fact that a rate hike will put more pressure on households, Bailey said, “It’s a tough message but if we don’t take this action it will be worse.”

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