The Bank of England chief economist apologized on Monday for blaming other people for the high inflation rate and for saying that Britons should ” accept”, they are poorer. He also reiterated that households and businesses could not escape being affected by higher energy costs.
Huw Pill sparked a ” Viral Response ” last month, when he stated that “someone in the UK needs to accept they are worse off and stop trying maintain their real purchasing power”.
Pill expressed regret for his choice of words in a Monday webcast by the BoE. Pill stated that if he had another chance to choose different words he would. “I don’t think that the viral response was very helpful for our communication.”
Pill acknowledged that families with lower incomes and small businesses were the hardest hit by the crisis in the cost of living over the last year. Inflation has been rising at double digits for six months and is now the highest it’s ever been.
Pill explained that households and businesses could not avoid becoming poorer as natural gas prices increase.
Chief economist, Mr. Xie said that he would be bringing “difficult message” to the public. . . It is “important” that such messages are delivered in a manner that is less inflammatory. He said that he thought inflationary challenges needed to be tackled in a “coherent, robust” way.
Pill stated that when wholesale natural gas prices rise, the national income will be affected, which in turn hurts households and businesses that are not involved in the energy industry. “That will squeeze your spending on everything else,” said Pill.
He said the BoE had to find a way to deal with the income squeeze and rising inflation, knowing that the effects of higher interest rates would take time to reach the rest of the economy.
He noted that the biggest challenge facing the central bank was “the incompatibility between a smaller pie and everyone’s spending” as households and businesses “tried to maintain their current level of expenditure before the pie shrank”.
He said that this was creating “more persistent and self-sustaining momentum” in inflation, which would keep the bank from reaching its 2% inflation target even as the initial increase in gas prices dropped out.
Pill acknowledged that rising interest rates will intensify the squeeze for many households and businesses, but said: “monetary policy is very powerful but a blunt instrument” and it is necessary to slow down spending in order to align it with the worsening economic outlook and the higher gas prices.
He said that this was needed to prevent inflation from becoming stuck between 4 and 5 percent, rather than returning to the BoE’s target of 2 percent.
“It is precisely this that we are trying to avoid because, if the inflation stays at [4-5%], it will continue for a long time.”