The governor of the Bank of England has called on businesses to show restraint when raising their prices, after he came under heavy criticism for saying workers should not demand big pay rises to help manage inflation.
Andrew Bailey said that he recognised his call for workers to show restraint in the annual wage-bargaining process was unpopular, but warned that there were risks of an upward spiral for inflation taking hold.
However, in a conciliatory response to questions from MPs on the Commons Treasury committee, he said the same point also held true for firms planning price hikes to protect their profit margins.
“I’m not saying people should not take pay rises. I did make the point it was in the context of large pay rises. And my concern is the second-round effects. If everybody tries to get ahead of the shock we’ve had from outside, then we’ll get the second-round effects and it will get worse. That’s the problem,” he said.
Asked by the Labour MP Angela Eagle whether big companies and City bankers should exercise similar restraint, Bailey said: “The same point holds on restraint. [It] holds for everybody.”
The Bank’s governor said he was worried that current high rates of inflation, caused by soaring energy prices, could persist for longer if workers and firms tried to offset the shock by significantly raising their incomes. This could create “second-round effects” to the initial shock from higher energy costs.
However, Bailey struggled to answer when asked how much he was personally paid, compared with the median UK wage of £31,285. “[It’s] substantially higher. It’s somewhere over £500,000, I can’t tell you exactly what it was. I don’t carry that around in my head,” he told Eagle.
The Bank’s governor was paid £575,538 including pension in his first year in the job from March 2020. This is more than 18 times the UK average pay, which remains below the 2008 financial crisis peak once inflation is taken into account, making this the weakest period for wage growth in 200 years.
Bailey’s comments earlier this month earned him a rebuke from No 10 and drew a furious response from trade unions. Bailey told MPs he would agree to visit a care home to see how low-paid workers were managing with the rising cost of living.
“I don’t think it’s appropriate for me as governor of the Bank of England to make an observation about the pay level of a particular group in society. [But] I will take my governor’s hat off for a moment. My mother was in a care home for several years, I have close experience. I have enormous respect for people who work in care homes. It is a very, very difficult environment for people to work in,” he said.
Britain’s biggest banks have reported a bumper bonus season fuelled by a rise in profits, while several companies have said they will push up the price of their goods and services due to higher costs.
The Bank’s governor said he was most concerned that poorer households would bear the brunt of persistently high rates of inflation.
“It’s those with the least bargaining power in the labour market that lose out in this situation,” he said. “In a process where there are people trying to offset the shock to real income, some people will be better able to do it than others.”
Asked by the Labour MP Rushanara Ali about the risks to higher levels of inflation, Bailey said that rising tensions between Russia and the west over Ukraine had pushed up global gas prices – which risked feeding through into the cost of living.
