Worried about inflationary spiral, Bank of England governor urges citizens not to ask for pay rise yet
The United Kingdom is approaching its highest CPI inflation in three decades, and the Bank of England predicted this week that CPI inflation will peak at 7.25% in April this year, more than three times the central bank’s target. The governor of the Bank of England said the rate hike was now in response to soaring import prices, and if no action was taken, the situation would only get worse.
Bank of England Governor Bailey urged citizens not to ask for a pay rise for the time being, saying that despite the rising cost of living, the government needs to focus on controlling inflation.
On Thursday, local time, Bailey said in an interview with British media that his goal was to stop inflation from spiraling upwards in anticipation of wage increases.
“We are seeing some signs of upward pressure on wages in (labor) negotiations. The labor market (supply) is tight. We do need to see wage growth subdued,”
“We do need to see modest wage growth. It’s painful. I don’t want to glorify this message in any way.”
Media commented that Bailey’s remarks highlighted the dilemma of the Bank of England’s decision to raise interest rates. His remarks after raising interest rates could lead to criticism that he is not sensitive to people’s livelihood.After all, the president’s current annual salary is close to 500,000GBP($680,000).
Before Bailey’s remarks, the Bank of England just announced its decision to raise interest rates for the second time in a row after its meeting on Thursday, and initiated passive reduction of the balance sheet to reduce the scale of bonds held by the central bank.
In January last year, the annualized CPI inflation rate in the United Kingdom was only 0.7%. In December, it rose to 5.4%, the highest growth rate since March 1992, nearly 1 percentage point higher than the Bank of England’s forecast released in November. The Bank of England meeting on Thursday expects inflation to rise further in the coming months, approaching 6% in February and March this year and peaking at around 7.25% in April. The projected peak is about 2 percentage points above the November forecast and more than three times the central bank’s target.
In order to suppress high inflation, the Bank of England does have reasons to raise interest rates, but tightening monetary policy will dampen economic growth and make the situation of migrant workers who face higher taxes and higher energy prices even worse.
British gas prices have risen by more than 400% in the past year, pushing up electricity, transport and manufacturing costs, the media said. When the UK inflation rate reached 2% in 2001, the national real income was high, but this high inflation means that real income will shrink by 2%. Based on the statistical cycle of four consecutive quarters, this will be the highest real income since 2011. Maximum drop.
Bailey noted on Thursday that, unlike past cycles of rate hikes, the rate hikes are “not standard demand-driven” at the moment, but in response to spikes in import prices, most notably natural gas. He said:
“We have a trade-off between high inflation and a slowing economy. If we don’t act, it will only get worse.”
The Bank of England’s job is to keep price hikes from becoming “entrenched” and he needs to limit pay rises even if they squeeze national household budgets.
The Bank of England forecast released this week showed that assuming global energy prices remain unchanged in six months, and as global bottlenecks ease and tradable commodity prices ease slightly, the central bank expects upward pressure on CPI inflation to increase over time. fade away over time. Base wages are also expected to moderate from 2023 as supply pressures in the labor market ease and inflation falls. CPI inflation is expected to fall back to just above the central bank’s target of 2 percent within two years.
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