Bank of England Chief Economist Huw Pill said the British people need to accept they are poorer instead of seeking to claw back a historic drop in living standards after a jump in inflation.
“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 higher wages or passing the energy costs through onto customers,” Pill said in an interview streamed Tuesday on the “Beyond Unprecedented” podcast.
He said that firms and workers are in a “pass the parcel game” that’s causing more persistent price pressures, contributing to the UK’s main inflation rate remaining stuck in double digits.
The remarks laid bare the challenge that policy makers face in curbing price pressures. Raising interest rates has sapped the spending power of households and squeezed corporate profit margins, stoking conflict with workers who are striking to demand higher pay.
While the comment reiterated a line officials at the BOE have said for the past year, Pill’s words were more blunt in suggesting that workers must shoulder more of the burden. That puts the BOE in conflict with thousands of public sector workers angry at the government over its decision to restrain pay.
BOE Governor Andrew Bailey was rebuked last year by trade unions for warning that they need to moderate pay demands. As recently as March 27, he said rising prices “has made us poorer as a country,” sidestepping the delicate issue of who should suffer.
Pill was more direct. He said there’s a “reluctance to accept that yes, we’re all worse off and we all have to take our share.” A tight jobs market and strong corporate pricing power means that firms can pass on costs in higher prices and workers can demand wage increases, fueling inflation further.
“The UK, which is a big net importer of natural gas, is facing a situation that the price of what you’re buying from the rest of the world has gone up a lot, relative to the price of what you’re selling to the rest of the world, which is mainly services in the case of the UK,” Pill said.
“If what you’re buying has gone up a lot relative to what you’re selling, you’re going to be worse off.”
His comments along with a speech by BOE Deputy Governor Ben Broadbent earlier on Tuesday are the final scheduled appearances from Monetary Policy Committee the next rates decision. The nine-member panel is weighing weather to push through a 12th consecutive rate hike after raising borrowing costs from less than 1% to 4.25% in the past 1 1/2 years.
Markets are betting on continued hikes in the coming months after a surprisingly strong inflation reading in March stoked fears of more persistent price pressures.
Pill, reiterating the BOE’s official forecast, said some of the pressures keeping inflation high are likely to dissipate in the coming months and that inflation may dip below the 2% target in the next few years.
He also said that some elements of the inflation hitting the UK are “transitory,” reviving a word controversially used by central bankers to delay interest rate increases two years ago.
“We’ve had a series of inflation shocks that just come one after the other,” he said. “Each of those shocks was in itself transitory, but they just were timed in a way that inflation never dissipated.