Households must accept that they will be “worse off” if inflation is to be tackled, the Bank of England’s chief economist has said.
Huw Pill said households had shown a “reluctance to accept” that inflation would lead to a decline in living standards and that workers would need to stop asking for pay rises to ensure prices could start falling.
Speaking on the Beyond Unprecedented podcast, Pill said: “If the cost of what you’re buying has gone up compared to what you’re selling, you’re going to be worse off.
“So, somehow in the UK, someone needs to accept that they’re worse off and stop trying to maintain their real spending power by bidding up prices whether through higher wages or passing energy costs on to customers.
“What we’re facing now is that reluctance to accept that yes, we’re all worse off and we all have to take our share.”
Pill joined the Bank of England in September 2021 and was paid a salary of £88,154 and benefits of £7,029 during his first six months at the organisation.
Other senior Bank officials have made similar warnings. Andrew Bailey, the governor of the Bank of England, said last year that workers would need to stop asking for pay rises. He told the BBC that this restraint would be “painful” for families during the energy crisis.
He said: “We do need to see a moderation of wage rises, now that’s painful. I don’t want to in any sense to sugar that, it is painful. But we need to see that in order to get through this problem more quickly.”
Families and businesses have been saddled with substantial increases in the price of essential items including food, energy, and broadband services.
Grocery inflation came in at 17.3 per cent in the four weeks to April 16, according to data from the analytics firm Kantar, while broadband and mobile phone users are facing price rises of up to 17.3 per cent. The headline rate of inflation in the UK came in at 10.1 per cent in March.
The Bank of England is expected to increase interest rates again next month as part pf the fight to curb prices. Policymakers are tipped to raised rates by 0.25 percentage points to 4.5 per cent.