London Daily

Focus on the big picture.
Friday, Jul 11, 2025

Inflation-busting public sector pay rises risk stoking inflation, Bank of England governor warns

Inflation-busting public sector pay rises risk stoking inflation, Bank of England governor warns

Andrew Bailey tells MPs that while he expects inflation to fall sharply this year, he is worried about the prospect of large wage settlements damaging the progress it expects.
The governor of the Bank of England has told MPs that its forecasts for inflation to more than halve this year are at risk from price and wage-setting as unions continue to demand large public sector settlements.

Andrew Bailey was speaking after the Bank raised its base level of interest rates to 4% from 3.5% last week as it judged that while inflationary pressures were generally easing, there were stubborn elements still unclear and at play.

At that time, the monetary policy committee was split on whether to raise rates at all but the voting opted for the 0.5 percentage point hike given that the main measure of inflation remained in double digits at 40-year highs.

"We are concerned about persistence [of inflation] and that's why, frankly, we raised interest rates this time," he told the Treasury select committee.

"I am very uncertain, particularly about price-setting and wage-setting in this country. We have got the largest upside skew in our forecasts that we have ever had on inflation."

The Bank is forecasting that the Consumer Price Index (CPI) will fall to around 4% by the end of the year - from its current level of 10.5% - but that is based on a lack of additional shocks for the UK and wider global economy.

The index tracks inflation by monitoring the price of an average basket of consumer goods.

The war in Ukraine exacerbated rising costs witnessed since the end of the pandemic - with energy prices hitting record levels and being passed on down supply chains, through to consumers and businesses.

As wholesale energy and commodity costs ease, the Bank sees hope that the hit to the economy will ease too.

Its 10 consecutive rises in its base level of interest rates have been aimed at deterring, what it calls, secondary inflation.

The theory goes that if you make borrowing costs more expensive, activity in the economy is dented and things like wage rises are depressed to stop pressure on inflation being intensified by high spending.

Private sector wage growth has exceeded that of the public sector substantially since the COVID crisis struck and many unions are seeking inflation-busting pay rises to make up for lost increases and help their members navigate the squeeze on their budgets.

Strikes have hit the likes of the NHS and railways amid a failure to bridge the gulf between the demands of the unions and what ministers argue is affordable.

Mr Bailey said that the Bank's forecasts for inflation could be placed at risk if, on paper, the government was to fund any large pay rises through public borrowing rather than tax increases.

"What I would urge is that - particularly going forwards because we think inflation is going to fall very rapidly - that
is taken into account," he said, explaining that he was speaking in economic and not political terms.

"We've seen pay settlements, in particular in the private sector, are higher than consistent with the target, but not at
the level of inflation."
Newsletter

Related Articles

0:00
0:00
Close
Bitcoin Reaches New Milestone of $116,000
Biden’s Doctor Pleads the Fifth to Avoid Self-Incrimination on President’s Medical Fitness
Grok Chatbot Faces International Backlash for Antisemitic Content
Severe Heatwave Claims 2,300 Lives Across Europe
NVIDIA Achieves Historic Milestone as First Company Valued at $4 Trillion
Declining Beer Consumption Signals Cultural Shift in Germany
Linda Yaccarino Steps Down as CEO of X After Two Years
US Imposes New Tariffs on Brazilian Exports Amid Political Tensions
Azerbaijan and Armenia are on the brink of a historic peace deal.
Emails Leaked: How Passenger Luggage Became a Side Income for Airport Workers
Polish MEP: “Dear Leftists - China is laughing at you, Russia is laughing, India is laughing”
BRICS Expands Membership with Indonesia and Ten New Partner Countries
Weinstein Victim’s Lawyer Says MeToo Movement Still Strong
U.S. Enacts Sweeping Tax and Spending Legislation Amid Trade Policy Shifts
Football Mourns as Diogo Jota and Brother André Silva Laid to Rest in Portugal
Labour Expected to Withdraw Support for Special Needs Funding Model
Leaked Audio Reveals Tory Aide Defending DEI Record
Elon Musk Founds a Party Following a Poll on X: "You Wanted It – You Got It!"
London Stock Exchange Faces Historic Low in Initial Public Offerings
A new online platform has emerged in the United Kingdom, specifically targeting Muslim men seeking virgin brides
Trump Celebrates Independence Day with B-2 Flyover and Signs Controversial Legislation
Boris Johnson Urges Conservatives to Ignore Farage
SNP Ordered to Update Single-Sex Space Guidance Within Days
Starmer Set to Reject Calls for Wealth Taxes
Stolen Century-Old Rolls-Royce Recovered After Hotel Theft
Macron Presses Starmer to Recognise Palestinian State
Labour Delayed Palestine Action Ban Over Riot Concerns
Swinney’s Tax Comments ‘Offensive to Scots’, Say Tories
High Street Retailers to Enforce Bans on Serial Shoplifters
Music Banned by Henry VIII to Be Performed After 500 Years
Steve Coogan Says Working Class Is Being ‘Ethnically Cleansed’
Home Office Admits Uncertainty Over Visa Overstayer Numbers
JD Vance Questions Mandelson Over Reform Party’s Rising Popularity
Macron to Receive Windsor Carriage Ride in Royal Gesture
Labour Accused of ‘Hammering’ Scots During First Year in Power
BBC Head of Music Stood Down Amid Bob Vylan Controversy
Corbyn Eyes Hard-Left Challenge to Starmer’s Leadership
London Tube Trains Suspended After Major Fire Erupts Nearby
Richard Kemp: I Felt Safer in Israel Under Attack Than in the UK
Cyclist Says Police Cited Human Rights Act for Riding No-Handed
China’s Central Bank Consults European Peers on Low-Rate Strategies
AI Raises Alarms Over Long-Term Job Security
Saudi Arabia Maintains Ties with Iran Despite Israel Conflict
Musk Battles to Protect Tesla Amid Trump Policy Threats
Air France-KLM Acquires Majority Stake in Scandinavian Airlines
UK Educators Sound Alarm on Declining Child Literacy
Shein Fined €40 Million in France Over Misleading Discounts
Brazil’s Lula Visits Kirchner During Argentina House Arrest
Trump Scores Legislative Win as House Passes Tax Reform Bill
Keir Starmer Faces Criticism After Rocky First Year in Power
×