Mervyn King says pay squeeze necessary

Published on Wednesday, 26 January 2011 09:43
Posted by Scott Buckler

Mervyn King has said that the squeeze on UK take-home pay is necessary

Speaking in Newcastle, the Bank of England governor said the current high inflation rate was unavoidable as the UK economy adjusts to higher commodity prices and becomes more competitive.

He said inflation was likely to rise further to 4-5% in the coming months, before falling back sharply from 2012.

And he implied that the Bank would thwart attempts by wage-setters to keep up with the above-target price rises.

"Further rises in world commodity and energy prices cannot be ruled out," he said in his speech.

"Attempts to resist their implications for real take-home pay by pushing up wages would require a response [from the Bank's monetary policy committee]."

Despite this warning, his speech - which came in the wake of a surprise 0.5% contraction in the UK economy in the last three months of 2010 - appeared to downplay the chances of the Bank raising interest rates any time soon.

Source: ©BBC News

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