People Need to Accept They Are Poorer, Says Central Bank Economist

A view of the Bank of England in London, on Feb. 2, 2023. Yui Mok/PA Media

High inflation will stay persistent unless people accept that they are poorer, a senior UK central bank official has said.

The UK’s Consumer Prices Index inflation fell slightly to 10.1 percent in March from 10.4 percent in February, but remained in the double digits, according to the Office of National Statistics (ONS).

Huw Pill, chief economist of the Bank of England, blamed the persistent inflation partly on employees and businesses who have responded to higher bills and costs by asking for higher wages or charging their customers more money.

This, he said, adds to inflation, pushing up prices even further across the economy.

Shoppers in a supermarket in the UK on Oct. 15, 2021. Aaron Chown/PA Media

Speaking on the Beyond Unprecedented podcast from Columbia Law School, Pill said: “The UK—which is a big net importer of natural gas—is facing a situation where the price of what you’re buying from the rest of the world has gone up a lot, relative to the price of what you’re selling to the rest of the world, which is mainly services in the case of the UK.

“You don’t need to be much of an economist to realise that if what you’re buying has gone up a lot relative 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, etc.

“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.

“To try and pass that cost onto one of our compatriots and saying, ‘we’ll be alright, but they will have to take our share too’—that pass-the-parcel game that’s going on here, that game is one that’s generating inflation, and that part of inflation can persist.”

‘Tone-Deaf’

Pill’s remarks have triggered a backlash from unions and small businesses.

The Federation of Small Businesses said his comments were “out of touch.”

The trade body said on Twitter: “Small firms will be rightly angered by the tone-deaf comments from Mr. Pill, left with no choice but to pass on huge cost increases to customers—which in many cases are not enough to fill the gap.”

Amanda Gearing, a senior organiser for the GMB union, said it was “absolutely outrageous” for the bank official to ask “some of our lowest paid workers in this country not to take a pay increase when inflation is so high.”

“People can’t afford to live, they’re not able to pay their rent or put food on the table,” she told the BBC’s “Today” programme.

Thomas Moore, senior investment director at Abrdn, told BBC 5Live that Pill’s words were a “red rag to the bull.”

But he added, “You can see that underlying all of this, he has got a point which is—as long as inflation stays high, we are going to demand higher wages, and as long as we demand higher wages, inflation is going to stay high.”

‘Restraint’

This is not the first time Bank of England officials have made similar arguments.

Last year, the central bank’s governor Andrew Bailey urged people not to ask for big pay rises.

He told the BBC in February 2022, “We do need to see restraint in pay bargaining, otherwise it will get out of control.”

Governor of the Bank of England Andrew Bailey giving evidence to the Treasury Select Committee at the House of Commons, London, on March 28, 2023. House of Commons/UK Parliament via PA Media

Last month, Bailey warned businesses that they should not raise prices “to beat inflation.”

“If all prices try to beat inflation we will get higher inflation,” he told the BBC on March 24, the day after the bank lifted interest rates from 4 to 4.25 percent.

He said higher inflation “hurts people” and warned the bank would raise rates again if prices continued to increase.

“I would say to people who are setting prices: please understand, if we get inflation embedded, interest rates will have to go up further and higher inflation really benefits nobody,” he added.

Food Banks

The continuing prices rises are putting heightened pressure on household budgets across the UK.

The ONS said last week that food inflation hit a 45-year high of 19.1 percent last month.

According to new figures from research firm Kantar, grocery inflation fell slightly in April from last month’s 17.5 percent, but consumers are still paying 17.3 percent more than this time last year.

This has driven an increasing number of people to rely on food banks.

According to the Trussell Trust, a total of 2,986,203 emergency food parcels were given out between April 2022 and March this year—the most parcels food banks in the charity’s UK-wide network have ever distributed in a single year.

It represents a 37 percent increase compared to the previous year, and is more than double the amount distributed by food banks in the same period five years ago, the charity said.

More than 760,000 people used a food bank in the network for the first time, a 38 percent rise on first-time users compared to the same period last year.

PA Media contributed to this report.