Bank of England governor admits UK economy is suffering from wage price spiral

Andrew Bailey has admitted for the first time that the Bank of England is tackling Britain’s wage price spiral as he pledged to raise interest rates “as far as necessary” to bring inflation back to the bank’s 2 per cent target.

Speaking at the annual conference of the British Chambers of Commerce in London, the BoE governor said the UK was experiencing the effects of a “second wave” of inflation, which would see the spread of rapidly rising prices from energy and food, affecting general wages and companies. Exposes in pricing by.

“Some of the firming up in core inflation reflects indirect effects of higher energy prices,” Bailey said.

“But it also reflects second-round effects as external shocks interact with the state of the domestic economy. And as headline inflation falls, these second-round effects are unlikely to go away as quickly as they appear.” “

Through 2022 and into this year, the BoE has repeatedly said it is trying to hedge the risk of higher energy and food costs affecting household wages and prices. It has now admitted that it has failed in that task.

The governor said one of the pieces of good news in the economy was that wage growth had eased slightly and that “near-term indicators suggest further moderation in wage growth may occur later this year”.

But the BoE’s monetary policy committee was looking for further progress before it was convinced it had restored price stability to the UK economy.

“The outlook for inflation is more uncertain and depends on the extent of persistence in wages and pricing,” Bailey said, adding that “the Committee will continue to closely monitor indicators of persistence in inflationary pressures”.

“I can assure you that the MPC will adjust the Bank Rate as needed to sustainably target inflation over the medium term,” Bailey said.

The governor’s words were echoed by Chancellor Jeremy Hunt, who said at the same conference that there was “nothing automatic” about bringing down inflation.

After it emerged last week that the BoE thought there was a close to 50:50 chance it would miss Rishi Sunak’s target of halving inflation this year, Hunt refrained from criticizing the BoE in its fight against inflation. Refused.

“The Bank of England has a role through monetary policy and interest rates, we support that 150 per cent,” he said.

Hunt also took part in the Conservative Party’s debate on immigration, calling for Britain to maintain a pragmatic stance on the issue. “If you look at what has happened since the Brexit vote, since we left the single market, the government has been pragmatic when it comes to immigration requirements,” he said.

At the same conference, which Bailey had addressed on his ouster as the CBI counterpart before it was cancelled, BCC director-general Shevaughn Haviland sought to position the body as an advocate “for every business”.

He did not mention business lobby group CBI, which suspended operations following a misconduct scandal, but said business needed a “new relationship with the government”. “With the general election less than 18 months away we are at a critical moment for being the voice of British business,” Haviland said.