BOE Chief Praises Firms for Increasing Pay for Poorest Workers

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Bank of England Governor Andrew Bailey praised companies for directing salary rises to the lowest-paid workers, while on a two-day visit to the north of England.  

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Businesses told Bailey they had seen some improvement in operating conditions, but highlighted labor shortages, supply chain snarl-ups and rising costs as persistent problems, Business Live reported on Friday. 

“Quite a few businesses are saying to me that they are doing more to direct their pay rises to the lower paid, and I think that is sensible,” Bailey said. “I wouldn’t direct them to do that, it’s not for me to do that but when I talk to businesses, I can understand why they’re doing that.”

This news comes shortly after data from the Office for National Statistics showed the UK economy shrank by 0.2% between July and September as rising interest rates took a toll on consumer spending. The BOE has said a recession is a necessary evil as the central bank battles to get double-digit inflation back under control. 

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Bailey has urged businesses to keep a lid on pay increases, amid concerns that the UK’s tight labor market could spur a wage-price spiral that keep inflation elevated. However, the central bank chief admitted that the poorest members of society are the worst-affected by the cost-of-living crisis that the UK is currently experiencing. 

“Inflation is bad for the least well-off generally and this inflation is particularly bad,” said Bailey ahead of Friday’s GDP figures. “The reason is that it’s concentrated on energy and food — these are the essentials of living. It’s notable that when you look at the consumption mix of different income groups, the lowest income group have a higher proportion of energy and food in their costs. That means this inflation is hitting them harder relatively speaking.”

Bailey reiterated that the central bank remains confident it can bring inflation back down to its target of 2% within two years, adding he was hopeful that winter would see inflation peaking and then declining from current levels.