The governor of the Bank of England has sparked serious backlash after telling Britons they should not ask for a pay raise this year, even as the country grapples with its greatest cost of living crisis in decades.
British Prime Minister Boris Johnson and workers unions have been among those to decry Andrew Bailey, who last week said that employees should not pressure their bosses into boosting wages as the economy needs time to recalibrate amid soaring inflation.
Speaking to the BBC hours after the central bank imposed back-to-back interest rate hikes, the governor said businesses should assert “restraint” in pay negotiations to help battle 30-year high inflation.
When asked by the BBC whether the Bank was asking workers not to demand big pay rises, Bailey said: “Broadly, yes.”
He said that while it would be “painful” for workers, some “moderation of wage rises” is needed to prevent inflation from becoming entrenched.
Why Bailey is backing lower wages
Bailey’s comments correspond with the economic theory that rising wages lead to higher inflation.
As wages go up, so too does the cost of producing goods and services, leading companies to charge consumers more, thereby inflating living costs. In an already inflationary environment, that could lead to a vicious circle known as the “wage-price spiral” — a phenomenon that Britain experienced in the 1970s.
Such concerns prompted the Bank to raise interest rates to stem inflation, which is forecast to hit 7.25% in April, and bring it closer in line with its 2% benchmark. But the governor’s comments suggest that employees should be proactive, too, to avoid further escalation.
“In the sense of saying, we do need to see a moderation of wage rises. Now that’s painful. I don’t want to in any sense sugar that, it is painful. But we need to see that in order to get through this problem more quickly,” Bailey said.
Outcry as soaring living costs bite
However, the governor’s comments were seen as grossly insensitive, not least because his latest annual pay packet was worth over ?575,000 ($777,115) — 18 times the U.K. average for a full-time employee.
Britain is currently battling soaring living costs, with household finances already stretched and post-tax incomes forecast to fall 2% this year.
A spokesperson for Boris Johnson rejected Bailey’s calls for wage restraint, saying it’s not the government’s role to “advise the strategic direction or management of private companies.”
Meanwhile, unions across the country hit out at what they saw as Bailey’s tone-deaf comments.
“Telling the hard-working people who carried this country through the pandemic they don’t deserve a pay rise is outrageous,” said Gary Smith, general secretary of the pan-industry GMB trade union.
“According to Mr Bailey, carers, NHS workers, refuse collectors, shop workers and more should just swallow a massive real-terms pay cut at the same time as many are having to choose between heating and eating.”