Policymakers should raise interest rates gradually rather than taking an “aggressive” activist approach, the Bank of England’s chief economist argued on Wednesday, adding that there would be no avoiding a painful income squeeze in the year ahead.
Huw Pill stood by the tough message delivered last week by the BoE’s governor Andrew Bailey, who earned sharp rebukes from the government, business groups and unions when he warned that wages would need to fall in real terms this year in order to keep inflation under control.
Wage growth approaching 5 per cent this year, as shown in the BoE’s latest forecasts, would be “stronger than that consistent with the inflation target over the medium term”, Pill told an online conference. If it eased from 2023, inflation could subside without the UK falling into recession.