Andrew Bailey (Justin Tallis/PA)
(Picture: PA Wire)What is Andrew Bailey playing at?
After fumbling the ball on inflation last year, the Bank of England Governor has now asked Brits to take what amounts to a pay cut to help tame inflation.
Bailey told the BBC he was “broadly” asking workers not to ask for too big a pay rise this year to stop inflation becoming ingrained. With price rises set to hit 7.25% by April under the Bank’s own forecasts, that will mean people take a real-terms pay cut if they follow the governor’s advice.
Interviewer Faisal Islam was visibly astonished. The comments are unbelievable not just because the Governor himself is paid over half a million pounds, but because taming inflation is precisely his job.
Bailey argues that the current inflationary forces are beyond his control. There is little that Threadneedle Street can do about international gas prices, which are feeding through into higher energy bills.
But spiralling wages do not reflect gas prices. Nor do they reflect workers pressuring employers for hikes because of rising living costs.
Wages are rising because companies are bidding them up. They are doing that because of a shortage of workers.
Demand for staff is soaring due to a boom in dealmaking, construction and more — in part fuelled by the cheap money that the Bank of England, the Fed and the ECB have kept pumping out for the past two years.
Central banks were right to flood the economy with cheap credit as the pandemic struck to help keep it ticking over and then power a recovery. But the truth is they kept the taps open too long. It’s not hard to find people in the City who think central banks were too slow to wake up to the realities of inflation.
Now, Bailey and his colleagues want Joe Public to help them fix the problem.
Good luck with that.
