THE BANK of England’s chief economist, Spencer Dale, warned yesterday that inflation could continue to stick above target, tightening the squeeze on UK households’ budgets.
Stubbornly high inflation has been prompted by unavoidable yet “painful adjustments” in the economy such as sterling’s depreciation and higher VAT, while tumbling productivity has also hit the economy, Dale said.
Real wages and productivity are down by around 15 per cent compared with the pre-crisis trend, Dale told a gathering at Stationers’ Hall in London.
“The harsh but inescapable reality of these developments – and the real adjustments they necessitate – is that households and families in our economy are worse off. Much worse off,” he said.
And Dale warned that inflation levels higher than wage rises could continue to plague the UK. “Looking ahead, it seems likely that that this adjustment process is not yet complete and so the stickiness in inflation may persist for a while yet,” Dale said.
The consumer price index measure of inflation has stayed above its two per cent target for 35 straight months.
Despite slipping to 2.2 per cent in September, it worried economists by springing back up to 2.7 per cent in October.