Closing summary
Time to wrap up...
The governor of the Bank of England has come under fire from unions and earned a rebuke from 10 Downing Street for suggesting workers should not ask for big pay rises to help control inflation.
Andrew Bailey said he wanted to see “quite clear restraint” in the annual wage-bargaining process between staff and their employers to help prevent an upward spiral taking hold.
However, his comments drew a furious response from union leaders, as households face the worst hit to their living standards in three decades as soaring energy prices cause inflation to outstrip wage growth.
Sharon Graham, the general secretary of Unite, said workers did not cause Britain’s cost of living crisis and should not be asked to pay for it. “Why is it that every time there is a crisis, rich men ask ordinary people to pay for it?” she said.
“Enough is enough, we will be demanding that employers who can pay, do pay. Let’s be clear, pay restraint is nothing more than a call for a national pay cut.”
Bailey was paid £575,538, including pension, in his first year as the Bank’s governor from March 2020, more than 18 times the UK average for a full-time employee.
In a sign of a rift between the government and the Bank, the prime minister’s official spokesperson said pay restraint was not something he was calling for.
“We obviously want a high-wage, high-growth economy, and we want people’s wages to increase,” he said.
“We recognise the challenge of the economic picture which Andrew Bailey set out; but obviously it’s not up for government to set wages or advise on the strategic direction or management of private companies.”
As the Bank raised interest rates to 0.5% on Thursday to tackle inflation, it warned household disposable incomes were on track to shrink by 2% this year, the biggest fall since comparable records began in 1990.
It comes after the worst decade for average pay growth since the Napoleonic wars, with inflation-adjusted pay still below the pre-2008 financial crisis peak.
In other news today...
Oil has hit a seven-year high, with Brent crude and West Texas Intermediate both pushing further above the $90/barrel mark. The move pushed up Shell and BP’s share prices, but threatens further pain for motorists and companies, pushing up transport costs and some heating bills.
The US economy has appeared to shake off the Omicron variant in January as employers added 467,000 new jobs, much more than economists had feared.
Great Britain’s energy regulator is proposing to update the energy price cap as often as every three months as it braces for further volatility across global markets.
Households can expect their water bills to rise to an average of almost £420 a year from April, compounding a record rise in energy costs and an increase in national insurance contributions that are due in the same month.
MPs have called for a national road pricing scheme in which motorists will have to pay by the mile to make up a £35bn tax shortfall that will arise from the shift to electric vehicles.
The carbon dioxide emissions of new cars sold in the UK dropped to the lowest level ever in 2021 thanks to the unprecedented surge in electric vehicle sales, industry data suggests.
Average new car CO2 emissions fell by 11.2%, to 119.7g for every kilometre driven, according to the Society of Motor Manufacturers and Traders (SMMT), a lobby group.
The owner of the Upper Crust sandwich chain has reported a drop in sales as concerns about the Omicron coronavirus variant kept customers at home but said it was hopeful of better performance as commuters return to offices.
The UK film and TV industry has bounced back spectacularly from the pandemic with a record £5.6bn spent making blockbusters such as Mission: Impossible 7 and big-budget dramas including Bridgerton in the UK last year.
Shaftesbury, which owns swathes of Chinatown, Soho and Covent Garden, said West End crowds were returning despite the Omicron variant, with the prospect of an extended period of uninterrupted trading.
Goodnight. GW
Updated
The Daily Telegraph are reporting that the Bank of England is going to face demands for a ‘very substantial’ pay increase for its own workers later this year, or risk losing them.
Trade union Unite, which represents almost 600 of the Bank’s staff, recently accepted a 1.5% pay increase this year that is due to take effect from April.
But Mr Bailey now faces a pay revolt on his own doorstep after the union’s regional officer, Steve O’Donnell, said:
“Unite will be seeking a very substantial increase for workers at the Bank of England when pay talks resume later this year. [They] are suffering the same cost of living crisis as everyone else and Andrew Bailey can’t ignore the needs of his own staff.
“A failure to address pay will result in workers voting with their feet and seeking alternative employment where they are properly appreciated and remunerated.”
EXC: Unite is going to push for a "very substantial" pay rise for almost 600 Bank of England staff as Andrew Bailey faces a pay revolt on his own doorstep. Bank staff are only getting 1.5pc from April as inflation pushes past 7pc https://t.co/ebOBCq4Iom
— Russ Lynch (@russ_lynch) February 4, 2022
BP and Shell shares shine as oil surges
In the City, shares in oil giants Shell (+3.9%) and BP (+3.4%) have ended the day at the top of the FTSE 100 leaderboard.
The companies jumped as the oil price continued to climb, with Brent crude hitting new seven-year highs of $93.70 per barrel today.
Oil has now heading for its seventh weekly rise in a row, as bitter winter storms in the US threaten to disrupt production, adding to worries about Russia’s energy supplies as the Ukraine crisis rumbles on.
Higher oil is going to lead to more expensive petrol and diesel, raising transport costs, and adding to the inflationary pressure on households and businesses. It will also push up oil giant’s profits, with Shell fresh from quadrupling earnings last year.
BP and Shell’s buoyant share prices meant the FTSE 100 index has only closed 12 points lower at 7516, down 0.17%. But three-quarters of the companies on the blue-chip index fell today, with private equity firm Intermediate Capital (-4.15%), DIY chain Kingfisher (-3.9%) and Lloyds Bank (-3.6%) leading the fallers.
European markets had a rougher day, with Germany’s DAX sliding 1.75%.
TUC Analysis and Research Officer Alex Collinson has shown how real wages have stagnated for over a decade -- illustrating why calls for pay restraint have caused such anger today:
The comments about workers not asking for pay rises are particularly awful because of the wider context on pay.
— Alex Collinson (@Alex__Collinson) February 4, 2022
We're still in the midst of an over-decade long real pay crisis, with pay lower now than what it was in 2008.
This is the longest era of pay stagnation in centuries.
Between 1997 and 2009, real weekly pay grew by, on average, 2% per year.
— Alex Collinson (@Alex__Collinson) February 4, 2022
Since 2009, it's grown by an average of 0%. Completely flat.
If real median weekly pay had grown at the pre-2009 rate during this time, it would be £102p/w higher than it is. pic.twitter.com/9x0fmHDAED
The past 14 years have been the worst for pay in centuries. Nothing compares in recent history.
— Alex Collinson (@Alex__Collinson) February 4, 2022
It's partly why we have a cost of living crisis - people can't afford to get by.
To then use that cost of living crisis to tell people not to ask for wage rises is ridiculous.
Shaftesbury, which owns swathes of Chinatown, Soho and Covent Garden, said West End crowds were returning despite the Omicron variant, with the prospect of an extended period of uninterrupted trading.
The landlord, which owns a 16-acre (6-hectare) portfolio in the heart of London, said its vacancy rate had fallen below 5% for the first time since the pandemic started, to 4.9% in recent weeks – just above the 4.8% recorded in March 2020.
Brian Bickell, the chief executive, said the strong rebound in confidence and activity since last summer had continued into the key pre-Christmas period and the recovery was on track, despite short-term disruption from Omicron.
Households can expect their water bills to rise to an average of almost £420 a year from April, compounding a record rise in energy costs and an increase in national insurance contributions that are due in the same month.
Bills will rise by 1.7% in England and Wales from April, according to the industry body Water UK, pushing up the typical annual bill by roughly £7 to £419 a year.
The increase will come as further unwelcome news to hard-pressed households after Thursday’s announcement of the imminent £693 increase in home energy bills, which will drive the cost of gas and electricity to an average of £1,977 a year and plunge millions of homes into fuel poverty.
Christine McGourty, the chief executive of Water UK, said customers would pay “little more than £1 a day for their water and sewerage service” and there was “a wide range of support available for those in need”.
“But we know this is a difficult time for many, and no one should have to worry about their household essentials,”
Jess Cook, who leads the water poverty programme for National Energy Action, a fuel poverty charity, said research had shown that more than 40% of those struggling to pay their water bills would bathe less to reduce their water bills. Almost a quarter would cut back on food or personal hygiene products in order to save money.
Meanwhile in the US, 476,000 new jobs were created last month as the economy appears to recover from the Omicron disruption.
That’s far more than the 150,000 expected, with some economists fearing employment would have shrunk in January. November and December’s data was revised up too, to show another 700,000 more jobs than originally measured.
Earnings growth also rose, which should help America families facing their own inflation pressures (US inflation hit 7% in December)
"The 467,000 gain in non-farm payrolls in January is even stronger than it looks ... The headline gain appears to make a mockery of our fears that Omicron would weigh heavily on the payrolls figures, with leisure and hospitality employment rising by a solid 151,000" - @CapEconUS
— James Pethokoukis (@JimPethokoukis) February 4, 2022
It looks to be an encouraging sign for the US economy. But it could also spur America’s central bank to hike interest rates several times this year. Here’s the full story:
This chart, from Bloomberg, shows how the Bank of England expects real wages (pay after inflation) to fall this year, hurting households:
Bank of England Governor Andrew Bailey urges UK workers to show “restraint” when it comes to asking for a raise https://t.co/LpgyYkDoc5 via @lizzzburden pic.twitter.com/WyhPV2nlYX
— Zoe Schneeweiss (@ZSchneeweiss) February 4, 2022
The Bank is worried about a ‘wage-price spiral’, they explain:
The BOE expects underlying pay settlements to peak at close to 5% this year. But high inflation will mean real pay shrinks by 2%. Bailey said his job was to prevent those price rises becoming “ingrained” and that he wanted “restraint” in pay, despite the squeeze on household budgets.
“If we let that process rip as it were it’s not going to solve the problem, it’s going to get worse, particularly for those people who aren’t able to bargain on their wages, and many people aren’t able to,” he told ITV News on Thursday.
But, people are already facing rising prices for food, goods and services, and energy bills are going to surge in April, when national insurance increases also hit.
Without pay rises that keep up with inflation, living standards will be hurt, as the Daily Mirror’s Kevin Maguire points out here:
Big wage rises are needed to protect living standards from the worst squeeze in 30 years when inflation, taxes and interest rates are going up.
— Kevin Maguire (@Kevin_Maguire) February 4, 2022
BoE Governor Andrew Bailey calling for pay restraint is on £500,000 which is x16 UK £31,000 full-time average. https://t.co/wADA4mRIvJ
Bank of England Governor whose salary is £495,000 and whose total pay in 2020/21 was £575,538 (Annual Report p.79) tells people not to ask for a big pay rise pic.twitter.com/O2cQCTMJx4
— Paul Lewis (@paullewismoney) February 4, 2022
The Bank of England is likely to raise interest rate several times this year, predicts Ruth Gregory of Capital Economics:
The MPC’s policy statement this week cements our view that interest rates will rise further from 0.50% now to 1.25% by the end of this year and perhaps a bit further in 2023.
If anything, the MPC’s hawkishness suggests that rate hikes will come sooner than we anticipate.
With four MPC members wanting to raise rates to 0.75% and all members deciding to sell the Bank’s holdings of corporate bonds, it feels as though the Bank is stepping up its fight against inflation. This supports our view that rates will be raised to 1.25% this year. pic.twitter.com/3XdTL70XvI
— Capital Economics UK (@CapEconUK) February 3, 2022
The City was surprised that four of the nine Monetary Policy members voted for a 50- basis point increase to Bank Rate. They were narrowly outvoted by five who favoured yesterday’s 25bp rate rise (from 0.25% to 0.5%).
Professor Costas Milas of Liverpool University’s management school says the Bank is trying to sound tough, in the hope that a stronger pound pushed down inflationary costs.
In my view, such a decision (a 50 basis points rise, that is), following a rise of as recent as one month ago, would have been a stark admission of the very fact that MPC members have ended up miles behind the curve.
Obviously, they understand this. So by talking tough, four out of nine of them, they create expectations of almost imminently higher interest rates which, in turn, push the sterling exchange rate up. The hope, of course, of all nine members is that sterling will do their job in bringing inflation back to the target therefore reducing the risk of too many hikes....
UK restaurants, bars, hotels and leisure attractions are planning to hike their prices this year, as they pass on rising costs.
A survey by industry body UKHospitality of 340 hospitality businesses, representing 8,200 venues, found that 47% expect to increase consumer prices by over 10% this year, with 15% anticipating hikes of over 20%.
Overall, prices across the sector are expected to increase by 11% -- which would add to the UK’s cost of living pressures.
UKHospitality reports that firms are being hit by soaring operating costs, including:
- 41% in energy bills
- 19% in labour costs
- 17% in food prices
- 14% drinks prices
- 21% insurance costs
UKHospitality chief executive, Kate Nicholls, warns that many businesses will collapse, having missed out on the usual busy Christmas trading:
“Omicron has infected the start of 2022 with lower-than-expected trading levels and higher than expected cancellations in hospitality venues. One in three businesses in our sector have no cash reserves left and are already carrying heavy debt burdens. Many of our community pubs, restaurants, hotels and hospitality venues will therefore fail as the cost-of-living crisis bites, causing demand to faulter. This can only cause the UK’s wider economic recovery to stutter.
“This April’s planned increases in VAT, employment costs and business rates are therefore likely to prove one financial burden too many for businesses who only then, as we come out of the quieter winter trading period, can hope to begin to start trading at full capacity once more.
TUC: Pay restrain call is untenable
Paul Nowak, deputy General Secretary of the TUC, says Andrew Bailey’s call for pay restraint is ‘untenable’ in the current economy climate.
Nowak told Radio 4’s World At One that he has upmost respect for governor Bailey and the Bank of England, but “on this issue he’s just 100% plain wrong”.
He’s in real danger of appearing disconnected from the real experience of millions of working people up and down the country.
Nowak points out that, as chancellor Rishi Sunak explained yesterday, UK inflation is being driven by rising energy prices.
Wages haven’t risen in real terms in the last decade, Nowak continues, and the Bank now expects pay to fall in real terms this year - by £50 per month on average, the TUC has calculated.
Nowak says:
In those circumstances, with people facing those real choices between paying for their heating, or eating, the governor can’t expect working people just to sit on their hands.
Calling for them to show pay restraint, I think, is untenable.
The TUC's Paul Nowak tells #BBCWATO it's "untenable" for wages to be held down & pay rises don't necessarily increase inflation as BoE warns
— Rebecca Keating (@RebeccaKeating) February 4, 2022
Nowak also hopes that Bailey’s comments will open up a discussion about how pay is set in the UK.
A ‘great dose of collective bargaining’ could help social care, for example, where there are over 100,000 vacancies, endemic low pay and insecure employment, he says.
.@nowak_paul responds to Andrew Bailey's tone-deaf call for workers to restrain pay rises. He tells @BBCWorldatOne: "I would love employers, unions and government to be sat round a table having a sensible conversation about pay, about productivity, about skills."
— Tim Sharp (@tm_sharp) February 4, 2022
But with millions of workers being hit by rising national insurance payments this year, and rising bills, we’re telling them that the only thing that can’t rise is their pay, Nowak points out.
Nowak also predicts that Sunak will need to provide more help later this year for people with rising energy bills.
The chancellor should also recognise that something is fundamentally broken with the energy market, if the taxpayer is having to lend money to suppliers (to cut bills by £200 in October), he concludes.
Paul Nowak says the Chancellor will have to come back later in the year with more help when energy bills rise again #BBCWATO
— Rebecca Keating (@RebeccaKeating) February 4, 2022
Updated
City experts aren’t impressed with the Bank of England either.
Lawrence Kaplin, chief market strategist at international business payments firm Equals Money, says:
Yesterday’s interest rate hike along with details of the much-feared energy price cap rising some 54% prompted the Governor to warn that UK households must brace themselves for the biggest annual fall in their standard of living since records began 30 years ago. On what was a horrendous day for the UK consumer, the optics were definitely not helped in a post-meeting interview where Bailey urged workers not to ask for a big pay rise this year.
I think ex Bank of England rate setter Blanchflower put it best when referring to the BoE’s decision saying quite simply “they don’t know what they’re doing”.
Here’s more from professor Danny Blanchflower, of Dartmouth College, who served on the Bank’s Monetary Policy Committee from 2006 to 2009 (he was an early voice warning that an economic downturn was coming)
Just as real wages go strongly negative & UK growth ranks fourth in the G7 the MPC decides to hurt ordinary people even more - a slowing economy is worse than rising inflation. This is about delivering for the City of London at the expense of those on the Mile End Road omnibus
— Professor Danny Blanchflower economist & fisherman (@D_Blanchflower) February 3, 2022
Let me show in one chart why the MPC decision is a disaster - here is the employment rate in Nov 2021
— Professor Danny Blanchflower economist & fisherman (@D_Blanchflower) February 3, 2022
Full-employment, tight labor market my hat pic.twitter.com/8cArVXrJYy
Just as real wages go strongly negative Clueless Bailey tells workers it is their fault & need to get lower pay even though he won’t - public sector workers have had their pay frozen for a decade of Tory rule what kind of a world is this - time for workers to tell him to get lost
— Professor Danny Blanchflower economist & fisherman (@D_Blanchflower) February 4, 2022
Analyst Neil Wilson of Markets.com says Bailey has been ‘sleeping at the controls’, by not moving earlier to slow inflation before it hit 30-year highs.
The governor of the Bank of England, Andrew Bailey, says we can do our bit to help to battle rising inflation by not asking for wage increases. Coming from someone who’s been sleeping at the controls for the last 18 months, that is not exactly helpful. How about doing your job?
By which I mean getting a grip on inflation before it sets in – which would have been to gently tighten last summer. Too bad that moment was lost. Can’t believe I actually would like Mark Carney back.
UNISON general secretary Christina McAnea has also responded to Andrew Bailey’s comments, and called for the government to give public sector workers an above-inflation pay rise to help them through the cost of living crisis.
McAnea says:
“Holding wages down won’t stop the cost of living soaring.
“Staff struggling to keep the lights on and put food on the table are already leaving the NHS, care and other public services in their droves.
“The government must deliver the cash so this year’s wage increases are above the rate of inflation. Otherwise, the consequences will be disastrous for everyone.”
Updated
No 10 implicitly rebukes Bank of England chief over his call for wage restraint
The prime minister’s spokesman has implicitly rebuked Andrew Bailey, the governor of the Bank of England, for saying that people should show restraint when asking for pay rises to control inflation.
Asked if the PM agreed, during today’s Downing Street lobby briefing, the spokesman said:
It’s not something that the prime minister is calling for. We obviously want a high-growth economy and we want people’s wages to increase.
We recognise the challenge of the economic picture which Andrew Bailey set out but it’s not up for the Government to set wages or advise the strategic direction or management of private companies.
Our Politics liveblog has all the details from the briefing:
It is not hard to see why Boris Johnson would have found Bailey’s comments alarming; last year, in an interview ahead of the Conservative party conference, Johnson said that for him “wage growth” would be the most important measure of whether his levelling up policies were succeeding.
But the Bank of England has said families are about to experience the biggest fall in living standards for at least three decades.
Andrew Bailey’s call for people not to push for big pay rises, despite the painful cost of living crisis, is attracting more criticism.
The governor is being accused of being out of touch with families facing a squeeze on incomes as inflation rises.
Andrew Bailey, governor of the @bankofengland who is paid almost £500k is telling us - despite a cost of living crisis - we shouldn't ask for a pay rise.
— Wayne Chadburn (@mrchadburn) February 4, 2022
Out of touch with reality doesn't come close. pic.twitter.com/YDwSl522g8
Radio station LBC has a good take:
Speaking to LBC earlier on Friday, Sir John Gieve, former Deputy Governor of the Bank of England, said he could “imagine people would take issue with the comments but defended the Governor.
“What he was trying to say was that in the past when inflation has really got going - as it did 30 years ago - it was because wages changed prices, that led firms to put up their own prices, and then you’ve got a spiral developing,” he told Nick Ferrari at Breakfast.
One LBC caller, John from Liverpool, said he was “fed up” and Mr Bailey should live “for one day” on the wages of an average person.
“Get them down to the street level, let them come out for one day or a week, let them live with a person that’s trying to bring up kids, they’re trying to feed them... let them live on what they’re earning, let them see.
“I’m fed up of this Government, Nick, I’m fed up.”
'Let them live for one day with a person that's trying to feed their kids! Let them live on what they're earning!'
— LBC (@LBC) February 4, 2022
This caller was absolutely furious at Bank of England boss Andrew Bailey for suggesting workers shouldn't ask for pay rises.@NickFerrariLBC pic.twitter.com/aYkHfWl4NZ
Johnny Runge, principal researcher at NIESR, tweets that it shows economists would benefit from talking more to the wider public:
"tone deaf", "out of touch", "living in a bubble". @bankofengland Governor comment is, frankly, a disgrace for economics profession. We need to get economists into more conversations with *normal* people. See our @NIESRorg @ESCoEorg research: https://t.co/6gQcvAaDml https://t.co/mHn9j71aUQ
— Johnny Runge (@JohnnyRunge) February 4, 2022
Here’s a clip of Andrew Bailey explaining to the BBC yesterday that the Bank wants to see ‘moderation of wage rises’ to prevent inflation becoming ingrained:
You know something's fundamentally wrong with our macro-economic system when, after a decade of stagnant wages and in the midst of cost of living crisis, the leader of one our most powerful economic institutions - on £500k (18 x median wage) - says don't ask for pay rises...🤔 pic.twitter.com/8LeCFqWia3
— Frank_vL (@Frank_vanlerven) February 4, 2022
The owner of the Upper Crust sandwich chain has reported a drop in sales as concerns about the Omicron coronavirus variant kept customers at home but said it was hopeful of better performance as commuters return to offices.
SSP Group operates fast food chains targeted at railway stations and airports, which also includes Camden Food Co, Ritazza and Burger King franchises at travel locations.
Hit hard by pandemic restrictions on travel, sales in the eight weeks from 6 December were only 57% of the equivalent in pre-pandemic 2019, the company said in a trading update. That compared with 66% of 2019 levels across October and November.
Here’s our news story on Ofgem’s proposal to update Great Britain’s energy price cap more often, with further volatility expected across global markets.
More than two-thirds of adults have reported that their cost of living had increased in the last month, with food, energy and fuel all cited.
The Office for National Statistics latest survey of Coronavirus and the social impacts on Great Britain, conducted in the second half of January, found that 69% of adults said their cost of living had increased.
That’s up from 66% earlier in the month, and 62% in early November when the question was first asked.
Of this group, 89% said the price of food shopping had risen, while 68% said the price of fuel had increased -- as the rise in crude oil price fed through to the pumps again.
Higher spending on gas or electricity was also cited by many, even before the energy cap rises in April.
Around 2 in 10 (19%) of adults reported they had found it very difficult or difficult to pay their usual household bills in the last month, compared with a year ago. The proportion appeared to be highest among those aged 30 to 49 years (27%), the ONS said.
Reuters’ Andy Bruce has crunched the data, and shows that regular pay growth already looks pretty stable:
Restraint on pay?
— Andy Bruce (@BruceReuters) February 4, 2022
Three-month annualised private sector wage growth - a gauge of most recent momentum in pay trends which in the past MPC members liked to talk up when it suited their message - has been falling for 4 out of last 5 months 👇 pic.twitter.com/O2Hl7SoArC
Excluding bonuses, it's a pretty stable picture of late pic.twitter.com/UENm059wjh
— Andy Bruce (@BruceReuters) February 4, 2022
Unions blast BoE governor's call for wage restraint
Trade unions have blasted the Bank of England governor for calling for pay restraint, at a time when workers are facing a drop in their real incomes.
Unite general secretary Sharon Graham says employers who can afford to give their staff a pay rise, should do so.
Workers shouldn’t be expected to pay for the energy crisis, or the surge in inflation, she points out, adding that Andrew Bailey is actually calling for a national pay cut.
Graham says:
“Yet again workers are being asked to pay the price, this time for inflation and the energy crisis. Inflation has not been caused by workers. Why should they be expected to pay for the failures of the energy market and the total shambles of Government policy?
“Workers don’t need lectures from the Governor of the Bank of England on exercising pay restraint. Why is it that every time there is a crisis, rich men ask ordinary people to pay for it?
“Enough is enough, we will be demanding that employers who can pay, do pay. Let’s be clear, pay restraint is nothing more than a call for a national pay cut.”
As covered earlier, Bailey insists he’s not saying ‘nobody gets a pay rise’ - but he is urging workers to hold off on asking for bigger pay raises, even though households face the worst squeeze on record this year, with inflation heading over 7% by April.
My colleague Richard Partington reports that Andrew Bailey’s comments have drawn a sharp response from other trade unions too:
Kate Bell, the head of economics at the TUC, said inflation was being driven by rising energy costs, not pay demands.
“Working people need a pay rise now. And the best way to get one is to join a union.
🔥Inflation is cos of rising energy costs not pay demands
— Trades Union Congress (@The_TUC) February 4, 2022
💴 Real pay fell last month - & there’s been a decade of pay squeeze
🦺 Working people need a pay rise now
👊 The best way to get one is to join a union
Gary Smith, the general secretary of the GMB trade union, said Bailey’s comments were a “sick joke”.
Bailey was paid £575,538, including pension, in his first year as the Bank’s governor from March 2020, more than 18 times higher than the £31,285 median annual pay for full-time employees in the UK.
Union density in the private sector has fallen steadily since the 1970s, when high rates of inflation were fuelled by high pay settlements, to about 13%. Official figures show average weekly earnings after taking account of inflation fell in November, and remain below their pre-2008 financial crisis peak.
Here’s Richard’s full story:
The Bank of England’s chief economist has warned further action may be taken if inflationary pressures, such as higher wages, prove more persistent than expected.
Huw Pill has told Bloomberg TV that the Bank expects a further modest tightening to monetary policy in the coming months -- ie, another rise in interest rates, on top of the rise from 0.25% to 0.5% yesterday.
BOE Chief Economist Pill says key rate likely to rise again in coming months https://t.co/95P3tKCwFU via @_DavidGoodman @flacqua pic.twitter.com/yu15nVHJXi
— Zoe Schneeweiss (@ZSchneeweiss) February 4, 2022
Pill said that the Bank would have to act if it saw that the surge in energy costs was pushing up wages and other costs more than forecast:
“A key assumption in our forecast... is that we don’t see from the middle of next year, persistence emerging in wage and domestic cost developments, stemming from these second-round effects,”
“It’s that lack of that, the fact that policies including monetary policy do enough to avoid that, that is central to bringing our inflation back towards target.
If we were to see developments that were not consistent with that assumption, then of course, we would have to think about further action.”
(thanks to Reuters for the quotes)
BANK OF ENGLAND CHIEF ECONOMIST HUW PILL TO BLOOMBERG TV: BOE TRYING TO 'AVOID THE EMERGENCE OF SECOND ROUND EFFECTS'#huwpill #bankofengland #monetarypolicy #inflation
— Mace News (@MaceNewsMacro) February 4, 2022
#BOE'S PILL: OUR GOAL IS TO REDUCE INFLATION'S SECONDARY EFFECTS.
— XGLOBAL Markets (@xglobalmarkets) February 4, 2022
BOE'S #PILL: THE LABOUR MARKET IS LIKELY TO TIGHTEN EVEN MORE.#XGlobalMarkets #BANKS #ENGLAND #INFLATION
Updated
Some better news for the UK economy - construction growth has hit a six-month high.
Business activity in the UK construction sector increased for the 12th month running in January, and picked up after a lull in December, according to the latest survey of purchasing managers from IHS Markit and CIPS.
Their Construction PMI also found that new orders rose at the fastest pace since August 2021.
The index rose to 56.3 in January, up from 54.3 in December, showing the fastest growth since last July.
Commercial activity was particularly strong, but housebuilding growth slipped to a four-month low.
Rapid rises in raw material prices, energy costs and transportation bills continued push up business expenses in the construction sector -- although cost inflation did dip to a 10-month low as supply issues eased.
The UK’s competition watchdog has fined Facebook-owner Meta a second time, for breaching an enforcement order related to its purchase of Giphy.
The Competition and Markets Authority (CMA) has fined Meta £1.5m, for not reporting that three employees listed as ‘key staff’ had left the company.
That, the CMA says, is a breach of its initial enforcement order (IEO) under which Meta must inform the competition authority of any ‘material changes’ to the business.
Those IEOs prevent companies from completing a merger while the competition authority examines it.
Joel Bamford, senior director of mergers at the CMA, explains:
Meta failed to alert us in advance to important changes in their staff, despite knowing they were legally required to do so. This is not the first time this has happened.
Initial enforcement orders are an integral part of our mergers toolkit and ensure the CMA is able to take effective action if we find competition concerns. Breaches like this one threaten our ability to maintain the benefits of competition for people using these products and services.
The CMA fined Facebook over £50m last October, and has ordered the company to sell Giphy, the gif creation website, due to concerns the deal will hurt competition.
Reuters reports that Meta, whose value plunged by a record $230bn+ yesterday, has said it will pay the fine,
Facebook owner Meta says it will pay the CMA fine over Giphy deal
— Sky News Breaking (@SkyNewsBreak) February 4, 2022
For more on this and other news visit https://t.co/8OWd2TvLrt
Updated
Over in the eurozone, retail sales have dropped as the omicron variant and rising inflation hit the economy.
Retail sales volumes fell by 3% in December, a much weaker reading than expected, with Covid-19 restrictions hitting some shops.
Sales of non-food products fell by 5.2% during the month, despite the Christmas shopping season. Food, drinks and tobacco sales volumes fell 0.3%, while online shopping volumes were down 3.9%.
Euro area #RetailTrade -3.0% in December 2021 over November, +2.0% compared with December 2020. Annual average for 2021: +5.0% over 2020 https://t.co/gW385bbk3A pic.twitter.com/GvvEA1omcz
— EU_Eurostat (@EU_Eurostat) February 4, 2022
Retail sales across the eurozone tanked in the run-up to Christmashttps://t.co/pHy4q7aKWL
— ING Economics (@ING_Economics) February 4, 2022
Updated
UK car sales were sharply below their pre-pandemic levels last month, as shortages of semiconductors continued to hit production, and household budgets are squeezed.
There were 115,087 new cars registered in January, the Society of Motor Manufacturers and Traders (SMMT) reports, which is almost 23% less than in January 2020.
It is 27.5% higher than a year earlier, though, when lockdown restrictions kept car showrooms shut.
Rising demand for electric cars supported the market, with registrations of battery-powered electric vehicle up 130% year-on-year to 14,433. Plug-in hybrid sales rose 47% to 9,047.
Diesel sales slumped by 45% year-on-year, to 6,008.
Mike Hawes, SMMT chief executive, said:
“Given the lockdown-impacted January 2021, this month’s figures were always going to be an improvement but it is still reassuring to see a strengthening market.
Once again it is electrified vehicles that are driving the growth, despite the ongoing headwinds of chip shortages, rising inflation and the cost-of-living squeeze. 2022 is off to a reasonable start, however, and with around 50 new electrified models due for release this year, customers will have an ever greater choice, which can only be good for our shared environmental ambitions.”
January new car market gets electrified boost but headwinds constrain recovery
— SMMT (@SMMT) February 4, 2022
🚗115,087 new cars registered, up 27.5%
⚡️1 in 5 buyers goes electric, new analysis reveals average new car CO2 record low -11.2%
📈New industry outlook puts 2022 market on course for 1.897m vehicles pic.twitter.com/Y8gGnjmFEw
The shift to electric cars has prompted MPs to call for a national road pricing scheme.
The cross-party Commons transport select committee argues that motorists will have to pay by the mile to make up a £35bn tax shortfall that will arise from the shift to electric vehicles, which don’t pay fuel duty (charged on petrol and diesel sales).
This chart from Resolution shows how the UK is facing the worst squeeze on incomes on record this year.
Resolution: 2022 will bring a £1,000 living standards squeeze
UK households are facing “recession-era levels of squeezed budgets” this year, the Resolution Foundation thinktank warns.
Resolution has calculated that the average family will be £1,000 worse off this year, due to the fall in disposable incomes forecast by the Bank of England yesterday.
It also warns that the council tax rebate announced by Rishi Sunak yesterday, to help cushion the surge in energy bills, won’t reach all of the poorest households.
Mike Brewer, chief economist at the Resolution Foundation, explains:
“Yesterday the Chancellor announced a bold plan to limit the impact of soaring energy bills. But by not targeting families most in need of support, and by trying to minimise the cost of support to the public purse, families will still face significant bill rises from this April, and higher bills for many years to come to pay off the cost of the Chancellor’s new bills loan scheme.
“Repurposing the Council Tax system to pay lump-sum grants to most households is another innovative policy from HM Treasury. But Council Tax band is a crude measure of need, and the result is that 640,000 of the poorest households will end up getting less help than some of the richest households in Britain.
“The £350 energy bill rebates will soften the cost of living crunch this Spring. But families across Britain are still set for recession-era levels of squeezed budgets this year, with the average family seeing their incomes fall by £1,000 over the course of 2022.”
From out overnight analysis of the Government's response to the April 2022 energy bills rise - Over one-in-four households across London, the South East and the South West won’t be eligible for the Council Tax rebate, compared to fewer than one-in-ten households across the North. pic.twitter.com/21qvWxp268
— Resolution Foundation (@resfoundation) February 4, 2022
Here are the key points from Resolution’s analysis:
- A tight squeeze for low-income families. The poorest fifth of households are still set to experience a major rise in energy costs from April, with the average proportion of their spending on energy bills rising from 7 to 10 per cent even after yesterday’s package.
- Big gaps in support via the Council Tax Rebate. More than one-in-ten of the poorest households in England, 640,000 households in total, live in Band E+ properties and therefore won’t be entitled to the £150 rebate.
- Levelling up in action? Over a quarter of households across London, the South East and the South West won’t be eligible for the Council Tax rebate (due to living in Band E+ properties), compared to fewer than one-in-ten households across the North.
- More progressive than cutting NI. By providing flat-rate rebates to households, the Chancellor’s package was much more progressive than a cut to National Insurance (or cutting VAT on energy bills).
- 2022: the year of the £1,000 living standards squeeze. The bigger picture on the cost of living crunch was outlined by the Bank of England, which forecast that real household disposable income fall by 2 per cent in 2022 – the largest fall on record, and equivalent to an average £1,000 income loss for families across Britain.
Updated
Brent crude oil hits $92/barrel
The oil price has hit its highest level in over seven years, intensifying the energy crunch that is driving up inflation, squeezing households, and boosting oil producers’ earnings.
Brent crude has jumped to $92.41 per barrel, its highest level since October 2014.
❗️BREAKING: The price of Brent oil reached $ 92 per barrel for the first time since October 2014 - trading data pic.twitter.com/bPBXLCFhKb
— Francesco Comito (@FrancescComito) February 4, 2022
US crude oil (or WTI) has also hit seven-year highs, over $91 per barrel, as a massive winter storm hits America.
Edward Moya, senior market analyst at OANDA, explains:
“WTI crude surged over the $90 level after an Arctic blast made its way to Texas and disrupted some oil production in the Permian Basin..”
Oil had already been pushed higher by the rising tensions between Russia and the West over Ukraine. The Opec+ group is continuing to increase supplies gradually, even as demand increases as economies recover from the pandemic.
Shares in Shell have jumped 4%, a day after it reported that annual profits quadrupled last year - intensifying calls for a windfall tax on North Sea producers who are profiting from the energy crunch.
Bailey: difficult period ahead as real wages fall
On the overall economic picture, Andrew Bailey warns that the UK is returning to a period of ‘much slower growth’, and faces ‘difficult’ times as real wages fall.
That recovery will be slower than it would otherwise have been, due to the pressures facing the economy, he told Today.
All G7 countries are suffering the same shocks -- the pandemic, and the energy price shock, the BoE governor, warning:
It is going to be a difficult period ahead.
We are already seeing, and we’re going to see, a reduction in real income.
[the latest employment data shows that wages failed to keep up with inflation in November]
Bailey predicts that the UK will “start to come out” of this situation in 2023.
Two years from now, we expect inflation will be back onto a more stable position.
[Yesterday’s forecasts showed household disposable incomes falling 0.5% in 2023, on top of the historic 2% squeeze this year].
UK is experiencing the worst hit to household spending power for 30 years.
— Joel Hills (@ITVJoel) February 3, 2022
Bank forecasts real post-tax labour income forecast will fall by 2% this year - biggest hit since records began in 1990.
BUT this doesn’t incorporate the action government has taken on energy bills. pic.twitter.com/A0qsfqMRtQ
[That, of course, is why workers will be looking for pay increases to help them cope with the cost of living squeeze].
Bailey: inflation is not out of control
Q: Is inflation potentially uncontrollable by the Bank of England?
Governor Andrew Bailey says inflation is not out of control. But there are forces, such as energy prices, which the Bank can’t directly alter.
Q: Is it frustrating that your ability to make a difference is less?
Bailey says the Bank has to deal with the shocks that confront it. It’s been dealing with some very big shocks that it can’t control, such as Covid, and energy prices are a very similar situation.
Q: Are you apprehensive about the future, given the difficult choices and real hardships facing families?
Bailey pledges he and his colleagues will do everything they can do deal with it.
We’ll do everything we can to get inflation back to target. We’ve set out a very plausible profile of how that will happen.
BoE governor Andrew Bailey also told Today that the Bank’s forecast shows inflation falling back to its 2% target within two years - calling it a ‘sensible, central case forecast’.
But that relies on energy prices not rising further (with the Ukraine crisis threatening to push up gas prices higher).
And Bailey added that the UK is not in a normal situation.
The ‘normal situation’ is that demand in the economy gets ahead, and there’s too much demand relative to supply. That puts pressure on prices, pressure on wages, and the Bank of England comes in and raises interest rates to calm it all down.
We’re not in that world. This is a world of external prices rising, reducing people’s real income.
Bailey adds that the Bank faces a “a very difficult balance” as it tries to use its tool to “minimise the damage to households, firms and the economy” to get back onto a stable path.
Bank of England: We need to see restraint on pay rises
The Bank of England is calling on workers and bosses to show ‘restraint’ on wage rises, even as the country faces its toughest squeeze in decades.
Speaking to the Today Programme, governor Andrew Bailey says the Bank wants to see “quite clear restraint” in the bargaining process.
Bailey, who is paid around half a million pounds a year, insists that the UK is not experiencing a wage-price spiral, but pressures are building.
A day after the Bank raised interest rates to 0.5%, and warned that inflation will hit 7.25% in April, Bailey said controlling wage increases is key to keeping a grip on inflation.
We are looking to see quite clear restraint in the bargaining process. Otherwise it will get out of control.
It’s not at the moment but it will do.”
I’m not saying don’t give your staff a pay rise, Bailey insists, adding that the Bank’s concern is the size of those increases.
Q: But won’t wage restraint prevent companies from hiring workers, at a time when many are struggling to fill positions?
Bailey says he wants to see wage restraint across the economy.
I’m not saying nobody gets a pay rise, don’t get me wrong. But what I am saying it, we do need to see restraint in pay bargaining, otherwise it will get out of control.
Yesterday, the Bank of England warned that UK households face the worst squeeze on their disposable incomes for at least 30 years, with real post-tax labour income expected to shrink by 2% this year.
With inflation soaring, taxes increasing in April, economic growth slowing and unemployment rising, the economic outlook is darkening.... with Thursday’s rise in UK interest rates adding to pressure on borrowers.
Updated
Introduction: Ofgem proposes more frequent price cap changes
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
With the UK’s cost of living crisis worsening, energy regulator Ofgem is proposing to adjust the price cap on bills twice as frequently, to address the volatility in the market.
A day after British households were hit with the news that average bills will rise by nearly £700, Ofgem kicked off a consultation on a proposal to switch from half-yearly to quarterly price cap updates.
Currently, the cap on what suppliers can charge only increases every six months.
Jonathan Brearley, CEO of Ofgem, told Radio 4’s Today Programme.
We have seen an extraordinary event in the energy market over the last few months. Something that’s a one in 30-year event.
We’ve seen volatility and change in prices far above what has been expected and what is historical.
That volatility led to a flurry of companies collapse since last summer, as they couldn’t pass on the jump in wholesale electricity and gas prices to consumers.
Having hiked the price cap by 54% on Thursday, Brearley is now looking to the future, warning that the UK’s regulatory package needs to change.
The difficult news for all of us is that this volatile market might be with us for some time.
Adjusting the price cap more frequently means when price go up, the cap goes up -- meaning households would be hit earlier by changes in the wholesale market.
But when prices come back down again, so would the cap, Brearley argues.
And in the long-term, the real way for the country to escape this volatility is to diversify its energy sources and push harder on getting to net zero target.
Today we've published decisions on the default tariff cap methodology, alongside further information on actions to help stabilise the energy market and protect consumers from risks associated with current wholesale market volatility.
— Ofgem (@ofgem) February 4, 2022
➡️https://t.co/5LfDOEmnAp#EnergyPriceCap pic.twitter.com/Sy5urB4kwo
The energy price crunch prompted chancellor Rishi Sunak to announce yesterday that 28 million electricity customers will have £200 knocked off their bills in October.
But the money must be repaid in £40 annual instalments over the next five years, and has been criticised as a “ buy now pay later” scheme.
Council tax payers in England in bands A to D will receive a rebate of £150 from their bills in April, which will not have to be paid back, while separate sums have been set aside for devolved governments in Scotland, Wales and Northern Ireland.
Yesterday, the Bank of England warned that UK households face the worst squeeze on their disposable incomes for at least 30 years, with real post-tax labour income expected to shrink by 2% this year.
With inflation rising to 7.5 per cent, taxes increasing in April, economic growth slowing and unemployment rising, the economic outlook is darkening.... with Thursday’s rise in UK interest rates adding to pressure on borrowers.
Also coming up today
The latest US jobs report is expected to show a sharp slowdown in hiring at America’s firms last month, due to the surge in Omicron cases and a slowdown at businesses. Economists predict employment in January slowed to a crawl, or possible even turned negative.
Adam Cole of RBC Capital Markets explains:
The median expectation for the headline change in payrolls is +150K, but the real expectation is almost certainly much weaker than this.
After a very weak private payroll report this week, and comments from several Federal Reserve officials that the employment report could be an outlier, market expectations may now be centred on a negative headline number, Cole says.
European stock markets are set to open higher, after Amazon beat profit expectations last night, and announced it will hike the price of its Prime service in the US as it passes on higher shipping and wage costs.
European Opening Calls:#FTSE 7575 +0.61%#DAX 15418 +0.32%#CAC 7022 +0.23%#AEX 752 +0.40%#MIB 27145 +0.21%#IBEX 8701 +0.13%#OMX 2281 +0.15%#SMI 12215 -0.16%#STOXX 4152 +0.27%#IGOpeningCall
— IGSquawk (@IGSquawk) February 4, 2022
Amazon shares jumped in after-hours trading, shortly after Facebook parent company Meta posted the biggest one-day loss in history for a US company, with more than $230bn wiped off its value after disappointing results
The agenda
- 8.30am GMT: Eurozone construction PMI for January
- 9am GMT: UK car sales for January
- 9.30am GMT: UK construction PMI report for January
- 10am GMT: Eurozone retail sales for December
- 1.30pm GMT: US non-farm payroll report for January
