The Governor of the Bank of England has suggested that the Bank’s most senior economist chose the wrong words when saying that people and businesses should accept they are poorer now because of inflation.
Andrew Bailey said that there had been a hit to national income, and did not appear to criticise the substance of what chief economist Huw Pill said, but added the wording was “not the right one”.
It comes after Mr Pill told a podcast last month that someone will need to get poorer in the UK – which could include businesses or people – as the value of what the country exports has increased more slowly than the cost of what it imports.
Speaking after the Bank hiked interest rates from 4.25% to 4.5%, Mr Bailey said on Thursday: “We are very conscious that all inflation is difficult, and particularly for those least well off,” he said.
“This inflation is particularly difficult for those least well off because it is concentrated in what are called the essentials of life, food and energy, and people on lower incomes have a larger proportion of their consumption in the essentials of life.”
He added: “The economics of the hit to national income are clear.
“I want it to be very clear that we are very sensitive to the position of all people, but particularly people on lower incomes.
“I don’t think Huw’s choice of words was the right one in that sense, I have to be honest, and I think he would agree with me.
“What I’m afraid we can’t duck is this very big hit to national income, which we have to deal with.”
Mr Pill said last month: “You don’t need to be much of an economist to realise that if what you’re buying has gone up a lot relative to what you’re selling, you’re going to be worse off.
“So, somehow in the UK, someone needs to accept that they’re worse off and stop trying to maintain their real spending power by bidding up prices whether through higher wages or passing energy costs on to customers etc.
“What we’re facing now is that reluctance to accept that, yes, we’re all worse off and we all have to take our share; to try and pass that cost on to one of our compatriots and saying ‘we’ll be all right, but they will have to take our share too’.”
On Thursday Mr Bailey also said he had refused a pay rise this year as he was asked whether people in the City of London should lead by example to help keep inflation down.
“On the level of pay rise for executives, these things are set by firms not by us,” he said.
“I’ve been very clear in my past and my present as a regulator of banks, that we have quite extensive regulation which seeks to create the right incentives for senior executive remuneration, but it’s not about the level.”
August Graham, Press Association