Bank of England chief says people need to accept they are poorer

The Bank of England’s top economist has said Brits ‘need to accept that they are poorer’ otherwise prices will continue to rise.

Huw Pill told a podcast in the US that there was a ‘reluctance to accept that, yes, we’re all worse off’.

He said in response to higher bills and other costs rising, workers had responded by asking for wage increases and businesses were charging more.

UK inflation, the rate at which prices rise, was 10.1% in the year to March.

The rate dropped last month from 10.4% but prices are still rising at a slightly slower pace.

Mr Pill said people demanding pay increases and businesses putting prices up added to inflation and caused prices to rise even further across the economy.

There has also been huge strike action from key workers including nurses, hospital staff and train drivers after rows with the government over pay, during a cost-of-living crisis.

Mr Pill said: ‘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 onto one of our compatriots and saying: ‘We’ll be alright, but they will have to take our share too’.

‘That pass-the-parcel game that’s going on here, that game is one that’s generating inflation, and that part of inflation can persist.’

Thomas Moore, senior investment director at Abrdn, told the BBC Mr Pill was pointing to one-off factors driving up inflation and saying ‘don’t blame us, look at these one-offs and actually we need you to help us to get [inflation] down to 2% because the sooner that all of you expect lower inflation in terms of your wages demands and the settlements you achieve with your employers that will help bring inflation down’.

However, Mr Moore said there had been a ‘massive expansion’ in the money supply under the Bank of England as a result of the Covid pandemic.

He said: ‘The problem is monetarist economists believe that money supply is the key root of inflation, so there’s this debate raging at the moment – was it those one-off transitory factors [that caused inflation] or was it actually a cause of this underlying issue of money supply?’

Mr Pill is not the first Bank of England official to warn about wage rises contributing to inflation.

Last year, the Bank’s governor Andrew Bailey urged people not to ask for big pay rises, to try and stop prices rising out of control.

The British Retail Consortium said it expected food prices to start falling ‘over the next few months’.

But the retail industry body said there was a three to nine-month lag to see price falls reflected in shops.

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