News of the sky-rocketing energy prices devastated millions of Brits this week.
The energy regulator Ofgem announced that its new cap was going to be 54% starting from April 1, meaning people on fixed tariffs will need to pay near to £2,000 just for gas and electricity. That’s an extra £693 a year on energy bills.
While the cost of living goes up, wages are staying put, meaning people have less money to deal with household basics.
In fact, the UK is on course to endure two more decades of stagnant wages, expected to earn less in 2026 than in 2008, according to recent analysis by the Office for Budget Responsibility.
It might seem natural to seek out a higher income to offset the ever-increasing costs of living. However, the governor of the Bank of England says to ask for a pay rise now is to cause further economic decline.
Andrew Bailey, who earned £575,538 including pension in the year from March 2020 (18 times the national average of £31,772), has encouraged people not to expect higher salaries and admitted the UK faces a ‘difficult period’ ahead.
This comes after the Bank of England announced an increase in interest rates, from 0.25% to 0.5% on Thursday, saying it expects prices to climb faster than pay.
When you consider all the new price hikes – the energy cap, higher tax contributions through NI, weak earnings compared to inflation – we’re seeing the biggest fall in disposable income that we’ve ever seen since records began.
So it’s no wonder Bailey’s words feels hard to swallow for many.
The Bank of England governor said it was “painful” to offer this advice but that it was needed to ensure prices don’t spiral out of control.
The reasoning: if staff are demanding higher salaries, employers will need to compensate for those extra costs by raising the price of goods and services even further, causing an inflation spiral. It costs a company more to pay their employers more, so they would look to pass the onus on to consumers.
Asked by the BBC, if people shouldn’t ask for a pay rise, Bailey said: “Broadly, yes – in the sense of saying: we do need to see a moderation of wage rises. That’s painful. I don’t want to in any sense sugar that message, it is painful. But we need to see this in order to get through the problem more quickly.
“I’m not saying ‘don’t give your staff a pay rise’ – this is about the size of it.”
When pushed on whether this message – and the bank’s increased interest rates – will cause a further squeeze on households, he replied: “It is a hard message but if we don’t take this action it will be worse.”