A Bank of England economist has claimed that people would be better off if they accepted that they are poorer and that people’s unwillingness to accept the nation’s downward mobility was fuelling inflation.
According to The Telegraph:
Huw Pill, Threadneedle Street’s chief economist, said: “[People] need 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 the energy costs through onto customers.”
Mr Pill said people and businesses were trying to maintain their standards of living and profits by either demanding higher pay or putting up prices.
However, he argued this was only likely to fuel inflation and compared the dynamic to a game of pass the parcel, where each player was unwilling to accept the burden of higher prices that make them poorer.
Mr Pill said: “That pass-the-parcel game that is going on here, that game is the one that’s generating inflation and that part of inflation can persist.”
He said there was a “reluctance to accept” that Britain had become collectively poorer but claimed it was an inevitable consequence of the surge in energy prices since the invasion of Ukraine.
Mr Pill said: “When your energy bill you get every month for your house goes up four or five times, that’s eating into your income. What’s the natural thing to do? Well, the natural thing to do is say, I need to be paid more.
“But then of course, that process is ultimately self-defeating. In the end, the UK, which is a big net importer of natural gas, is facing a situation that 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 if what you’re buying has gone up a lot relative to what you’re selling, you’re going to be worse off.”
He said people would have to eventually accept “that yes, we’re all worse off and we all have to take our share”.
The comments, made during an interview on the Beyond Unprecedented podcast produced by Columbia Law School in New York, risk reigniting criticism of the Bank of England for its handling of the worst inflation crisis in almost half a century.
The Bank’s Governor Andrew Bailey sparked anger last year when he urged workers not to ask for large pay rises and told businesses to stop trying to raise prices to beat inflation.
