Bank of England governor Andrew Bailey said inflation risked getting out of control without restraint on pay rises.
In comments on the BBC’s Today Programme Bailey said that despite an upcoming reduction in real income employers should avoid dishing out large pay rises. The advice comes after the Bank of England yesterday decided to raise interest rates by 0.5 per cent to calm soaring inflation which has reached a 30-year-high at 5.4 per cent and is climbing still higher.
“It is going to be a difficult period ahead. I readily admit because we are we are already say and we’re going to see a reduction in in real income,” Bailey told the BBC.
Bailey said employers and staff need to show “restraint in the bargaining process” over wages, warning that inflation will otherwise “get out of control.”
“I’m not saying nobody gets a pay rise,” Bailey continued. “What I am saying is we we do need to see restraint otherwise it will get out of control.”
Inflation is on course to rise above 7 per cent this year, leaving households facing the worst income squeeze for decades. Households across Britain are bracing for an increase to energy bills of approximately 54 per cent.
“We can’t sustain the recovery level that we’ve had,” Bailey admitted, predicting that economic growth will be slower going forwards.
Bailey said current Bank of England modelling predicts that inflation will come back down to the Bank’s target of two per cent in the next two years. He said the economy would be in a more “stable” position by 2023.