February 14, 2023: – Bank of England Governor Andrew Bailey urges workers and employers to consider the anticipated sharp decrease in inflation this year when dealing with pay settlements.
U.K. inflation is coming in at an annual 10.5% in December, which markets for a second consecutive month. The zooming cost of living in the country has led to widespread industrial action among public sector workers, whose average pay most drastically lags those of the private sector.
In the previous week, the Bank hiked interest rates by 50 basis points, taking the primary Bank price to 4%, as it looks to drag inflation back towards its 2% target.
On Thursday, Bailey told a parliamentary committee that the continued tightening remembered the Monetary Policy Committee’s concerns regarding the inflation industry and the need to see even more evidence of a loosening in the labour market.
“I do think we’ve turned a hub on headline inflation. It’s not only fallen, it’s under what we thought it would be in the November report, but we need to see more evidence that this will take the product,” Bailey told the treasury board.
The Bank anticipates inflation to begin softening rapidly from the middle of 2023 and reach over 4% by the end of the year as a result of base effects, vertical refuse in wholesale energy costs, a sharp drop in the price of imported goods and decreasing demand because of squeezed household incomes.
Asked regarding the potential inflationary impacts of negotiated pay highs for general sector workers, the governor stated that it would depend on how these wage increases were funded through borrowing or taxes.
“It depends on what form it would take, and let’s remember that, at the moment, all of these pay settlements are beneath the level of inflation,” Bailey stated.
“But we have to be forward-looking here. I would urge, particularly going forwards as we think inflation will drop very rapidly, that that is considered.”
In November, the Royal College of Nursing held strikes for the first time in its 106-year history, as we want a 5% pay grade for NHS nurses on top of inflation, which brings the total increase to around 17%.