Mr. Pill's comments risk renewed criticism of the Bank of England for its handling of the worst inflationary crisis in nearly half a century. Photo: Holly Adams. /Bloomberg
British families need to "admit that they are worse off" after a surge in inflation and stop pushing for higher wages, a senior Bank of England official said.
Hugh Pill, the bank's chief economist, warned that rising prices have made the whole country poorer and said attempts to raise wages only prolong agony.
This comes just hours after another senior Threadneedle Street official said the Bank would be powerless to curb inflation even if it acted faster on interest rates.
In an interview for the Beyond Unprecedented podcast, New York's Columbia Law School author, Mr. Pill said, «[People] need to acknowledge that they are in a worse position and stop trying to maintain their real purchasing power by raising prices, whether [ through] higher wages or power transmission costs to customers.”Wage demands, he said, only pushed up prices even more and, as a result, “caused inflation.”
Inflation was five times the Bank of England's March 2 percent target of 10.1%.
Wages rose at one of the fastest rates outside of the pandemic in the three months to February, at 6.6%, raising fears that price increases would prove permanent. In real terms, however, wages continued to fall rapidly.
Earlier Tuesday, Deputy Bank Governor Ben Broadbent defended his reputation and denied that an earlier interest rate hike could have made a difference.
Mr. Broadbent said: «If we had started three, four, five, six months earlier [it would have been], I don't know, maybe half a point less inflation at the most.»
1,703 families in the worst position
Interest rates would have to rise to nearly 20% to completely stop the current bout of high inflation, he said.
Unions threatening to strike for higher wages quickly seized on Mr. Pill's comments, blaming him deaf amid the biggest blow to living standards in decades.
Lawrence Turner, head of research and policy at the GMB union, said: «It's mind-bogglingly stupid when one of the highest paid government officials tells workers they should accept beggarly wages during the worst cost-of-living crisis in living memory.»
This was echoed by Paul Novak, general secretary of the Congress of Trade Unions, who said that the workers «do not need lectures», but rather higher wages.
Mr. Pill's remarks also angered the trade authorities, and the Federation of Small Businesses (FSB) criticized the comments.
Tina McKenzie, its political chair, said: “Small businesses will rightly be outraged by this tone. Mr. Pill's deaf comments as they fight inflation, which is still sky-high."
FSB National Chairman Martin McTag also called remarks on price increases «surprisingly out of touch from reality.» 34;, arguing that small firms have absorbed as much as possible.
Meanwhile, Simon French, chief economist at Panmure Gordon, recognized the risks of soaring prices but advised Mr. Pill to «use your brain before you open your mouth,» according to the Daily Mail.
Mr. Pill compared wage and price hikes in response to high inflation to a «pass the package» game where each player was unwilling to take on the burden of higher prices that made them poorer.
He said, «This package-handling game that's going on here creates inflation, and that part of the inflation can persist.»
Mr Pill added that there was «an unwillingness to admit» that Britain had become poorer overall, but said it was an inevitable consequence of the surge in energy prices following the invasion of Ukraine.
Budget, March 2023 .- standard of living is declining
He said that people will eventually have to come to terms with the fact that «yes, we are all worse off, and we should all take our share.»
The comments risk rekindling criticism of the Bank of England for its handling of its worst inflationary crisis in nearly half a century.
Bank governor Andrew Bailey drew ire last year when he urged workers not to demand higher wages. rises, and advised businesses to stop trying to raise prices to fight inflation.
Critics have argued that Mr. Bailey was trying to shift the blame for the soaring prices to workers and companies, rather than admitting the Bank's own shortcomings.
This comes after former Shadow Chancellor Ed Balls said there needs to be greater public oversight of the Bank's Financial Policy Committee (FPC), which is tasked with ensuring financial stability.
Mr Balls said: “As far as the FPC is concerned, there are far fewer checks. Control is much less effective. The public debate is far less informed.”
“I'm concerned about whether we have transparency, process and clarity,” he added.
Mr Balls, along with former Chancellor George Osborne, testified before the Lord's Economic Affairs Committee.
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