Mining wage

Bank of England’s Bailey says pay rises must slow

LONDON, Feb 3 (Reuters) – Bank of England Governor Andrew Bailey said on Thursday wages were rising too fast to rein in inflation, even as many households faced financial restrictions.

Asked by the BBC whether people should limit their wage expectations, Bailey said: “In the sense of saying, we need to see some moderation in wage increases, now that’s painful.

“I don’t want to sweeten this in any way, it’s painful. But we need to see this in order to get this resolved faster.”

Earlier Thursday, the BoE raised interest rates for the second time in two months, taking the bank rate to 0.5%. Nearly half of its decision makers wanted a bigger increase to 0.75%.

The central bank said consumer price inflation – which was 5.4% in December – is expected to peak at around 7.25% in April and the after-tax income of working households will fall 2% this year, although it tripled its wage growth forecast this year to 3.75%.

Pressure on living standards is turning into a political issue for Prime Minister Boris Johnson and Finance Minister Rishi Sunak who announced measures on Thursday to soften the blow to households from a more than 50% jump in energy prices domestic from April, when taxes are also expected to rise.

Ahead of his BBC interview, Bailey told reporters that Britain was not threatened by a wage and price spiral.

“What we’re saying…is we’re seeing an upward movement in what companies expect to be pay deals,” he said.

“After adjusting for all kinds of COVID effects on the data, I think the underlying rate of wage growth is a bit higher than what we expected at this point in the cycle.”

Writing by William Schomberg Editing by David Milliken

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