Bailey should leave the commentary to the commentators

It used to be said that the Governor of the Bank of England could keep the City of London on an even keel with the slightest flicker of an eyebrow. Andrew Bailey took a different tack last week – raising the entire nation’s eyebrows with a somewhat ill-advised suggestion to the nation’s workers that they temper their pay rise expectations.

It was another clunky performance from a man who – whilst no doubt qualified for the job as an economist and a regulator – sometimes does not appear to be careful enough with his words.

It is hard to believe that Bailey genuinely believes Brits should only ask for a small pay jump this year; for one thing, even keeping salaries in line with inflation is soon to amount to a seven per cent hike thanks at least in part to the Bank’s failure to see sky-high inflation coming even as most economists were doing so last year. But just as he risked being described as a Mark Carney-esque unreliable boyfriend last year when he marched markets up the hill in November only to turn them right back around again, so he now risks an equally damaging reputation as an out-of-touch regulator.

Bailey’s biggest problem, and one that his answer alluded to, is that inflation and wage spirals could well become ‘embedded’ in the economy. Had interest rates gone up quicker last year we may not be in that position, but we alas live in the world we live in, rather than the one we might wish to.

If the Bank’s only answer to that very real risk is calling on businesses to restrain pay hikes, we really are in trouble. Even a spokesperson for Number 10 said they thought Bailey’s comments were off-beam.

With history in his previous role at the financial regulator including the colossal failure of oversight that allowed LCF to blow-up with a bucketload of investors out-of-pocket, Bailey cannot afford too many more missteps. When the next rate rises comes round, as it will, he is better off leaving commentary to the commentators.