Bank of Englands chief economist has been blasted as out of touch with reality following public comments he made saying British workers need to accept they are poorer because of inflation.
Speaking on Columbia Law Schools Beyond Unprecedented podcast, Huw Pill said high inflation was because of pass the parcel behavior between businesses upping their costs, and employees asking for raises, along with supply-side pressures like the war in Ukraine and gas price hikes.
When your energy bill you get every month goes up four or five times, thats eating into your income, Pill said. Whats the natural thing to do? Well the natural thing to do is say: I need to be paid more. Whats the natural thing to do if youre a restaurant? The natural thing to do is say: I need to raise the prices of my meals in order to compensate the fact my gas bill is higher. But then of course that process is ultimately self-defeating.
He went on to imply that average Britains needed to cut back on spending, collectively accept a lower quality of life.
So somehow in the U.K. someone needs to accept that theyre worse off and stop trying to maintain their real spending power by bidding up prices, higher wages or passing the energy costs through to customers, Pill said. He added there is a reluctance to accept that yes were all worse off and we have to take our share.
The U.K. is currently suffering a year-over-year inflation rate of 10.1% as of March, and core inflation excluding energy, food, alcohol and tobacco was up 5.7%, according to the Office of National Statistics. Private rental prices in March increased 4.9% year over year, the 11th consecutive month of record-breaking growth, according to the government, and gas, which is used in homes for heating and cooking was up 129.4% over the same time period.
Pills comments were immediately slammed by small business groups and union leaders. Laurence Turner, the head of research and policy at GMB, one of the largest unions in the U.K., told Fortune they were crass adding that the country was suffering from the worst cost of living crisis in living memory.
The Bank of England did not immediately respond to Fortunes request for comment.
Hanging on
Small business groups also voiced their fury with Pills outlook.
Tina McKenzie, Policy Chair for the Federation of Small Businesses told Fortune that Pills comments are out of touch with what small firms are up against.
Small businesses have been bearing the brunt of high inflation for many months now, with no choice left but to reflect the huge increases they have seen for energy and input costs in their pricingand in many cases even that is not enough to fill the gap, McKenzie explained.
She added that droves of small businesses are painfully aware their customers cant bear the brunt of the cost hikes, saying theyre doing all they can to keep prices down.
Small firms have far less by way of cash reserves than large corporates, and millions of them are hit in the pocket by late payment, further reducing their financial headroom, she said. The Bank of Englands base rate hikes have made many existing loans more expensive, and have reduced the funding options available to small firms and start-ups. Far too many of them are only just hanging on day by day, unable to invest and plan for the future.
Tough love?
Pills comments are not the first time the British workforce has been given blunt advice from their central bank. In February 2022, Bank of England Governor Andrew Bailey told BBC Radio 4 that workers should stop demanding pay rises.
Im not saying nobody gets a pay rise, dont get me wrong, but I think, what Im saying is, we do need to see restraint in pay bargaining, Bailey said. That is painful. I dont want to in any sense sugar that message. It is painful. But we need to see that in order to get through this problem more quickly.
Baileys comments not only incensed unions at the time but earned a rebuke from Number 10 Downing Street. The prime ministers spokesman said: We recognise the challenge of the economic picture which Andrew Bailey set out; but obviously its not up for government to set wages or advise on the strategic direction or management of private companies.
Opinion among the globes top economists is divided on how worried nations need to be about the so-called wage-price spiral a the phenomenon of higher prices leading to higher wages, which in turn drives higher prices because of increased spending power.
Germanys finance minister, Christian Lindner, said earlier this month that threat of a spiral is very real.
But U.S. Treasury Secretary Janet said earlier this year that she hadnt seen any indications of the trend. And in March, the European Central Bank said wages had only a limited influence on inflation over the past two years and that the increase in profits had been significantly more dynamic than that in wages.
