LONDON (Reuters) – Bank of England Governor Andrew Bailey said inflation – already running at a 30-year high in Britain – risked getting out of control without restraint on pay rises.
“I’m not saying nobody gets a pay rise, don’t get me wrong, but I think, what I am saying, is we do need to see restraint in pay bargaining otherwise it will get out of control,” Bailey told BBC radio in an interview broadcast on Friday.
“We are looking, I think, to see quite clear restraint in the bargaining process because otherwise, as I say, it will get out of control. It’s not at the moment but it will do.”
On Thursday the BoE raised borrowing costs for the second time in two months, taking Bank Rate to 0.5%. Nearly half its policymakers wanted a bigger increase to 0.75%.
The BoE said consumer price inflation – which was 5.4% in December – was set to hit around 7.25% in April before dropping, and post-tax income for working households would fall by 2% this year, the biggest calendar year squeeze since at least 1990.
Bailey said the BoE faced a “very difficult balance” to steer the economy between the pain of falling living standards and the fight to bring down inflation.
The BoE on Thursday flagged further modest tightening “in the coming months.”
Investors on Friday added to their bets on borrowing costs rising at the BoE’s next meetings with rate futures pointing to Bank Rate hitting almost 1.5% as soon as August.
(Reporting by William Schomberg and Alistair Smout; Editing by Kate Holton)
