Bank of England's chief economist urges Brits to accept that they are poorer
Huw Pill, the Bank of England's top economist, has warned that the UK population must accept they are worse off, or else prices will continue to rise, with inflation currently at 10.1%.
Speaking on the Beyond Unprecedented podcast from Columbia Law School, Pill expressed concern over the "reluctance to accept that, yes, we're all worse off," the BBC reported.
According to Pill, workers have responded to higher bills and other rising costs by demanding wage increases, and businesses have reacted by charging more. UK inflation, which measures the rate at which prices rise, was 10.1% in the year to March.
While the rate dropped slightly from 10.4% last month, it does not mean prices are falling, but rather that they are increasing at a marginally slower pace.
Inflation in the UK has consistently surpassed the Bank of England's 2% target. One of the Bank's responsibilities is to maintain inflation at its target rate. In response to increasing prices, the Bank has raised interest rates, making borrowing money more costly.
In theory, this move should encourage people to spend less, thereby reducing demand for goods, cooling down the market, and slowing price increases.
As households face skyrocketing energy bills and food costs, many workers have requested pay raises to alleviate budget pressures.
While job vacancies have declined, they remain higher than they have been for decades, empowering people to ask for pay raises. Although pay has increased, it has not kept pace with inflation, leaving people worse off.
Pill explained that demanding pay raises and businesses increasing prices contribute to inflation, further raising prices throughout the economy. He 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."
Pill emphasized the need for people to accept they are worse off and share the burden rather than pass the cost onto others, a game that generates inflation and can persist.
Thomas Moore, Senior Investment Director at Abrdn, acknowledged that Pill was highlighting one-off factors driving up inflation and urging people not to blame the Bank of England. He suggested that people should expect lower inflation in terms of wage demands and settlements with employers to help bring inflation down.
However, Moore pointed out that there had been a "massive expansion" in the money supply under the Bank of England due to the COVID pandemic. He questioned whether inflation was caused by one-off transitory factors or the underlying issue of money supply, as monetarist economists believe that money supply is the primary cause of inflation.
Ian Miles Cheong
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