Bank of England’s Huw Pill says Brits need to accept ‘we’re all worse off’

  • Huw Pill, chief economist at Britain’s central bank, said in a podcast that workers and businesses were in a game of “passing the parcel” over the impact of inflation.
  • Pill said inflation was driven by shocks such as the pandemic, the war in Ukraine and crop shortages.
  • But he added that in the UK people had to accept that the costs of imported goods had risen faster than the value of what they were exporting.

Huw Pill, chief economist at the Bank of England, during an interview with Bloomberg Television in London, UK, Friday, February 4, 2022.

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LONDON — Businesses and workers are trying to pass on the impact of inflation to each other — and that is likely to persist, according to Huw Pill, chief economist at the Bank of England.

“What we’re up against now is this reluctance to accept that yes, we’re all worse off, we all have to do our part,” Pill said on an episode of Columbia Law School and the “Beyond Unprecedented” from the Millstein Center, published Tuesday.

“Trying to pass that cost on to one of our countrymen and say, it’ll be fine, but they’ll have to take our cut – that passes the parcel game… is one that generates inflation,” he said. declared.

Pill spoke of the “series of inflationary shocks” that had fueled inflation over the past 18 months, from the pandemic supply disruption and demand-spurring government household support programs, to the Russian invasion of the Ukraine and soaring energy prices in Europe. This was followed by unfavorable weather conditions and an outbreak of bird flu driving up food prices.

But Pill said that was not the whole story and that it was “natural” that the behavior of price and wage makers in economies including the UK and US would change when the cost of living, like energy bills, goes up, with workers demanding higher wages and companies raising their prices.

“Of course, this process is ultimately self-destructive,” Pill said.

He added that the UK, which is a net importer of natural gas, was facing a situation where the goods it was buying from the rest of the world had increased significantly compared to what it was selling to the rest of the world, mainly services. The UK imports nearly half of its food.

“If what you’re buying has increased a lot compared to what you’re selling, you’re going to be worse off,” Pill said.

“So somehow someone in the UK has to accept that they are worse off and stop trying to maintain their real purchasing power by raising prices, that whether it’s higher wages or passing on energy costs to customers, etc.”

Pill’s comments were widely published in the British media. In February 2022, Bank of England Governor Andrew Bailey came under scrutiny when he said wage negotiations could create domestic inflationary pressures and urged workers and employers to exercise “restraint” in salary discussions. Bailey’s comments were criticized by unions for focusing on how wages, not corporate profits, can fuel inflation.

The concept of a wage-price spiral, when rising wages create a loop of inflationary pressures by raising costs for businesses and stimulating demand, is debated in economics. Several politicians – including US Treasury Secretary Janet Yellen and European Central Bank officials – have said they see no evidence of this in the United States or the euro zone.

Economists, including IMF chief economist Pierre-Olivier Gourinchas, said wages could still rise without risking growth because they did not rise significantly once adjusted for inflation and the world of business maintained comfortable margins.

But some say the UK is particularly at risk because of its heavily imported economy, a weak pound and a tight labor market that has been squeezed by Brexit.

Inflation in the UK was expected to fall to single digits in March, but lay at 10.1%, with core inflation – which excludes food and energy and is closely watched by the Bank of England – at 5.7%.

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