Andrew Bailey previously attracted criticism after suggesting workers should show “restraint” when asking for big pay rises. The comments were picked up by MP Angela Eagle during questioning by the Treasury committee today. Mr Bailey admitted he didn’t know the average salary of a care worker before having to be told it was just over £9 an hour and asked what his salary was. The Bank of England Governor replied that it was “substantially higher”, adding “somewhere over £500,000” when pressed further.
Dame Angela reminded Mr Bailey of an invitation from the GMB Union to shadow a care home worker with the Bank of England Governor confirming he would visit a care home.
Mr Bailey insisted that his message on wage restraint was aimed at helping prevent inflation from becoming more embedded in the economy, adding that the real risk was that it was those with the least bargaining power who risked losing out.
Pressed on whether the message covered bankers’ bonuses and executive pay Mr Bailey said: “The same point on restraint holds for everyone.”
The Bank of England’s main worry is demand for higher wages along with producers raising prices will lead to inflation lasting longer, something Mr Bailey said was now “very clearly” a risk.
Mr Bailey said these so-called second round effects were a big concern and would lead to more interest rate hikes in the long run.
Jonathan Haskel, an external member of the Bank’s Monetary Policy Committee (MPC) also present at the meeting explained: “We don’t want that blip to turn into a permanent embedded form of inflation.”
Further pressure on energy prices, which have been a major driver of inflation, is expected to come from tensions with Russia over Ukraine which have already seen gas and oil prices soar.
Mr Bailey confirmed there was now an “upside risk on energy prices” due to the escalating situation in Ukraine.
The Bank has raised interest rates twice in a row to take them up to 0.5 percent with predictions of a further hike in March.
Asked for future predictions Ben Broadbent, Bank of England Deputy Governor for Monetary Policy said he doubted “we’ll get back to levels when the MPC first began in 1997.”
In May 1997 when the MPC was founded interest rates stood at 6.25 percent.
While Mr Broadbent refused to give a specific figure markets have been pricing in a rise to around 1.75 percent.
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