The government has issued a new warning to workers that they cannot expect wage increases to cope with rising living costs.
Chief Finance Minister Simon Clark said wage demands, which seek to match inflation, run the risk of creating a spiral in wages and prices since the 1970s, pushing store prices even higher.
His intervention came after the Bank of England’s inflation forecast was set to reach 11% in the autumn as it raised interest rates to 1.25%, the fifth straight increase.
Mr Clark said it was essential to prevent “rising” expectations of rising wages in line with rising prices, leading to inflationary pressures.
We need to be very careful to avoid fueling the inflation spiral in a way that is actually to everyone’s detriment if we allow it to run away from us.
Chief Treasurer Simon Clark
“There is no automaticity between inflation and the settlement of payments, and we must be very careful to avoid fueling the inflation spiral in a way that is actually detrimental to everyone if we allow it to run away from us,” he told the BBC.
“This is something that the governments of the 1970s have failed to deal with.
“If we find ourselves in a world where we say that all settlements are trying to meet inflation or even exceed it, then we are in a situation where we are actually creating conditions in which these expectations are absorbed, become self-fulfilling.
“This is the inflation risk.”
On Thursday, Community Secretary Michael Gove warned that the economy was facing a “painful” adjustment as the government and the bank tried to “push” inflation out of the system.
Mr Clark made it clear that public sector wage increases would need to be kept under control and that ministers would carefully consider the recommendations of the wage review bodies in the coming weeks.
Community Secretary Michael Gove says economy faces “painful” adjustment (Oli Scarff / PA)
(PA conductor)
“We are very far from this world of public sector wage freezes. That’s not what we’re doing now, “he said.
“We are looking very closely at what the pay authorities are sending us. The early signs are encouraging. There has been reasonable progress.
“We will have to wait for these negotiations to take full account, but when this is over in a few weeks, I think many employees will see that they are receiving good pay offers and this should be welcomed.
His warning came when 40,000 railway workers were expected to stop much of the country with a series of one-day strikes in support of wage increases to keep pace with prices.
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