After a bruising week, perhaps Andrew Bailey could take some solace in Rishi Sunak’s interview with Laura Kuenssberg this weekend. For a start, the Prime Minister threw his support behind the Bank of England governor, after senior figures within the Conservative party accused Bailey of being ‘asleep at the wheel’. But it was also a reminder that, no matter how bad things may seem at Threadneedle Street, they’re probably worse in No. 10.
Sunak is facing demands for proof that his plan for our economic recovery will work at a time when government debt as a proportion of GDP has reached its highest level since 1961, taxes are going up, productivity down, and growth remains stagnant. Insofar as this administration can control inflation, Sunak has said he is prepared to take unpopular steps on public sector pay. But this is hard to reconcile with reports today that junior doctors may be offered a 6 per cent pay increase and an extra payment of around £1,000 (although Sunak has hinted that he may block these rises).
Data last Wednesday revealed the headline rate of inflation remains at 8.7 per cent, unchanged from the previous month’s figure. Core inflation – which strips out more volatile prices like energy and food – isn’t just ‘sticky’, it has gone up. The CPI services rate also increased, from 6.9 to 7.4 per cent. One former IMF official has warned the UK has the ‘biggest risk’ of a wage-price spiral. Last week, Bailey suggested that pay ‘cannot continue’ going up at its current pace if inflation is to fall.
Are they right?
Average weekly earnings are up 18.7 per cent since February 2020.