Accept we are all getting poorer? Workers don’t have any choice

Comments made by the Bank of England’s chief economist Huw Pill on a US podcast were ill-advised and will be seized upon by those seeking to curtail the institution’s independence, says James Moore

The Bank of England’s chief economist says workers are responding to high inflation by asking for higher wages or charging more for their products (PA)

Oh dear. Another member of the Bank of England’s Monetary Policy Committee has put his foot in it. This time it is Huw Pill, the Bank’s chief economist. If you’ve read some of Pill’s speeches, you’ll see they have a tendency to be rather, shall we say, heavy-going. While appearing on a podcast produced by Columbia Law School in the US, however, he opted for some plain speaking.

“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 higher wages or passing the energy costs through on to customers. And 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,” he said.

Now, that is a very strange statement to make given that British workers have had little choice but to accept that they are getting poorer. They are already “taking their share”.

Let’s look at the official data, the same data that the Bank of England’s rate-setting Monetary Policy Committee (MPC) will have when it meets next month. It shows that annual pay growth for the three months to February came in at 5.9 per cent – outstripping all the forecasts in the regular poll conducted by Reuters, which put the consensus at 5.1 per cent. Excluding bonuses, annual wage growth held steady at 6.6 per cent when compared to the previous month’s figure.

Those numbers are indeed chunky by the standards of recent history, but here’s the thing: they still represent a real-terms pay cut. And a substantial one at that, when one considers that inflation is currently running at 10.1 per cent and has been in double figures for seven months.

Nor is the cost of living crisis a short-term phenomenon in Britain. Workers have, in fact, endured lengthy periods of falling real incomes since the financial crisis of 2007-08. Figures from think tank the Resolution Foundation show that average inflation-adjusted earnings are now lower than they were in 2008. They aren’t expected to recover until the late 2020s at best. Had pay continued to grow at its pre-financial-crisis clip, we’d be £218 a week better off on average. That’s more than 10 grand a year. Just think what you could do with that. Even after tax. It is a stunning figure.

That being the case, there is no need for us to “learn” that we are all poorer. It is an everyday fact of life, and an often frightening one for people not on the sort of salary Pill enjoys – roughly £180k, per the Bank’s annual report. It is something that confronts them every time they find themselves at a supermarket checkout.

It is quite absurd to think that anyone is going to go into a pay negotiation thinking, well, the Bank of England’s chief economist says we need to accept that we’re all getting poorer to win the battle against inflation.

Mr Pill, let me explain: some of those currently striking in pursuit of enhanced pay claims are doing so not out of a hunger for improved living standards. They have walked out because they don’t feel they have any choice. Some may even be doing so out of actual hunger. Increasingly, their personal finances don’t add up.

Pill’s comments are reminiscent of those of his boss, Bank governor Andrew Bailey, who makes hundreds of thousands of pounds and said last year that workers should refrain from asking for inflation-matching pay rises. Which only a small minority of workers are actually getting anyway. See the above figures.

Some members of the MPC have seemingly got twitchy about a 1970s-style wage-price spiral. But we aren’t really there, at least not yet. Workers also have considerably less bargaining power than they had almost 50 years ago when unions were much stronger – even in the midst of a tight labour market.

The likes of Pill, and Bailey, really do need to think. Comments like theirs threaten to bring the Bank into disrepute. They are fuel for Britain’s more asinine politicians, who have openly mused about the Bank’s (very necessary) independence. They will use them to fire fresh volleys at the Bank.

The MPC is about to use that independence to impose another painful increase in interest rates, which will hurt borrowers and further reduce their standard of living. They will have no choice but to accept that. A rate rise – probably of 0.25 per cent – will hurt the economy, too. It will not be a popular move. But it will be a necessary one. Britain’s inflation has to be brought under control.

Against that backdrop, a little understanding from the Bank’s senior figures of the real-world consequences of the current economic imbroglio would be a lot better than finger-wagging at workers preparing to say “Please, Sir, can I have some more?” to their bosses.