[UK] Bank of England governor: pay rises are bad for economy so stop asking

Bank of England governor Andrew Bailey caused an uproar on Friday after commenting that despite soaring energy bills, rising food and goods prices, and a pending payroll tax hike, workers shouldn’t ask for a big pay rise because that would only make inflation worse, Fortune reports.

“We are looking to see quite clear restraint in the bargaining process because otherwise, it will get out of control,” Mr Bailey said in an interview with BBC Radio 4 on February 4. “I’m not saying nobody gets a pay rise, don’t get me wrong, but I think, what I’m saying is, we do need to see restraint in pay bargaining.”

When questioned whether the bank was asking workers not to demand big pay rises, he replied, “Broadly, yes.”

“That is painful. I don’t want to in any sense sugar that message. It is painful. But we need to see that in order to get through this problem more quickly,” he said. 

A week earlier Mr Bailey had stated that if inflation spiralled out of control, it would only make things worse for people who aren’t able to bargain on their wages, which many people can’t.

The comments prompted a backlash on social media, with many highlighting the bank chief’s cushy £575,000 ($780,000) a year salary including pension and benefits - more than 18 times the national median - and accusing him of being out of touch.

Whether or not Mr Bailey’s comments were out of touch, they were undeniably ill-timed. British households will soon experience the worst squeeze on their income in decades, with energy bills expected to surge by almost £700 ($950) in April. 

UK Chancellor Rishi Sunak, granted an aid package of £9 billion to cover about half the increase in energy costs. While Labour proposed a tax on the rising profits of oil and gas companies to cover the increase.

Inflation and inequality

On February 3, the Bank of England announced that it expects inflation to top 7 per cent in coming months; a rate last seen in the 1990s, after the fall of the Soviet Union and an oil price shock. As a result the Bank of England responded with its first back-to-back rate increases since 2004, with the second, on February 3, increasing interest rates from 0.25 per cent to 0.5 per cent.  

Rising inflation results in paypackets shrinking in real terms. Although workers in the US are expected to see a wage rise of 3.9 per cent in 2022, the cost of goods and services has jumped 6.2 per cent over the past year, according to the latest report from the U.S. Bureau of Labor Statistics.

The situation is worse in the UK with pay rises expected to climb to 3.2 per cent in 2022, which would count as a pay cut when paired with an inflation rate of 7.25 per cent, according to research by advisory firm Willis Towers Watson.

In addition, Pew Research Center analysis of government data found that the pay bump over the past year was distributed unequally. Since the onset of the COVID-19 pandemic, higher-wage workers helped to raise the US median hourly wage to $23 for all employed people in the second quarter of 2020. However, the study found that if the number of people who became unemployed - including many in the lower-income bracket - were taken into account, the median wage of all workers remained unchanged at about $20 per hour. 

Higher inflation has a more significant impact on lower-income people as they are the most vulnerable to price hikes in energy, food, and gasoline. In the UK, the country’s Office for National Statistics has said it will break down inflation figures for different income groups, in detailed “experimental statistics” for the consumer prices index.

Source: Fortune

(Links and quotes via original reporting)

Bank of England governor Andrew Bailey caused an uproar on Friday after commenting that despite soaring energy bills, rising food and goods prices, and a pending payroll tax hike, workers shouldn’t ask for a big pay rise because that would only make inflation worse, Fortune reports.

“We are looking to see quite clear restraint in the bargaining process because otherwise, it will get out of control,” Mr Bailey said in an interview with BBC Radio 4 on February 4. “I’m not saying nobody gets a pay rise, don’t get me wrong, but I think, what I’m saying is, we do need to see restraint in pay bargaining.”

When questioned whether the bank was asking workers not to demand big pay rises, he replied, “Broadly, yes.”

“That is painful. I don’t want to in any sense sugar that message. It is painful. But we need to see that in order to get through this problem more quickly,” he said. 

A week earlier Mr Bailey had stated that if inflation spiralled out of control, it would only make things worse for people who aren’t able to bargain on their wages, which many people can’t.

The comments prompted a backlash on social media, with many highlighting the bank chief’s cushy £575,000 ($780,000) a year salary including pension and benefits - more than 18 times the national median - and accusing him of being out of touch.

Whether or not Mr Bailey’s comments were out of touch, they were undeniably ill-timed. British households will soon experience the worst squeeze on their income in decades, with energy bills expected to surge by almost £700 ($950) in April. 

UK Chancellor Rishi Sunak, granted an aid package of £9 billion to cover about half the increase in energy costs. While Labour proposed a tax on the rising profits of oil and gas companies to cover the increase.

Inflation and inequality

On February 3, the Bank of England announced that it expects inflation to top 7 per cent in coming months; a rate last seen in the 1990s, after the fall of the Soviet Union and an oil price shock. As a result the Bank of England responded with its first back-to-back rate increases since 2004, with the second, on February 3, increasing interest rates from 0.25 per cent to 0.5 per cent.  

Rising inflation results in paypackets shrinking in real terms. Although workers in the US are expected to see a wage rise of 3.9 per cent in 2022, the cost of goods and services has jumped 6.2 per cent over the past year, according to the latest report from the U.S. Bureau of Labor Statistics.

The situation is worse in the UK with pay rises expected to climb to 3.2 per cent in 2022, which would count as a pay cut when paired with an inflation rate of 7.25 per cent, according to research by advisory firm Willis Towers Watson.

In addition, Pew Research Center analysis of government data found that the pay bump over the past year was distributed unequally. Since the onset of the COVID-19 pandemic, higher-wage workers helped to raise the US median hourly wage to $23 for all employed people in the second quarter of 2020. However, the study found that if the number of people who became unemployed - including many in the lower-income bracket - were taken into account, the median wage of all workers remained unchanged at about $20 per hour. 

Higher inflation has a more significant impact on lower-income people as they are the most vulnerable to price hikes in energy, food, and gasoline. In the UK, the country’s Office for National Statistics has said it will break down inflation figures for different income groups, in detailed “experimental statistics” for the consumer prices index.

Source: Fortune

(Links and quotes via original reporting)