Brits must assume that they are currently lacking, Bank of England's head economist expresses

April 27, 2023: Companies and workers try to pass the effect of inflation onto each other, which risks persistent inflation, Huw Pill, the Bank of England’s chief economist, stated.

“What we’re facing now is that reluctance accepting that yes, we’re all worse off, we have to take our claim,” Pill stated on an episode of Columbia law college and the Millstein Center’s “Beyond Unprecedented” documentary released.

“To try and pass that prices on to one of our compatriots and state, we’ll be alright, but they will have to accept our share that passes the parcel game is generating inflation,” he said.

The Pill discussed the “series of inflationary shocks” that had fueled inflation over the previous 18 months, from pandemic distribution disruption and government household support programs, which improved demand to the Russian invasion of Ukraine and an outcoming spike in European energy prices. That has been going by adverse weather and an outbreak of avian flu, which drives up food prices.

But Pill said that was not the different story and that it was “real” that the behaviour of price-setters and wage-setters in economies including the U.K. and the U.S. would change when the current costs such as energy bills rise, with workers who ask for higher salaries and businesses raising prices.

“Of course, that everything is ultimately self-defeating,” said Pill.

He added that the U.K., a net importer of natural gas, is encountering a situation where the goods it purchases from the rest of the world have gone up relative to what it sells to the rest, primarily services. The U.K. imports almost half its food.

“If what you’re purchasing has gone up a lot connected to what you’re selling, you’re going to be worse off,” Pill said.

“So anyhow, in the U.K., someone must accept that they’re worse off and stop trying to manage their real spending power by bidding up prices, whether higher salaries or passing energy costs through to the people, etcetera.”

Pill’s comments have been published all over U.K. media. In February 2022, Governor Andrew Bailey of the Bank of England included scrutiny when he stated salary bargaining could cause domestic inflationary pressures and urged employees and employers to say “restraint” in pay discussions. Unions criticized Bailey’s comments for focusing on how wages, not corporate profits, can fuel inflation.

The concept of a salary-price spiral, when rising wages make a loop of inflationary pressures by increasing business costs and boosting demand, debating within economics. Several policymakers, which include U.S. Treasury Secretary and European Central Bank officials, have stated they do not witness evidence of it in the U.S. or the eurozone.