Andrew Bailey has raised ministers’ eyebrows for warning of “apocalyptic” food shortages as record wage growth raises fears that a dangerous inflationary spiral is taking hold in the economy.
Brandon Lewis, the Northern Ireland Secretary, expressed “surprise” at the Bank of England Governor’s comments about rising costs caused by the war in Ukraine blocking exports of wheat and cooking oils.
“I was surprised to see that particular turn of phrase, I have to say,” Mr Lewis told BBC Breakfast.
“But the Bank of England is independent, they will have their view of their assessment, their economic view of where things are and where things are going.”
It came as new data from the Office for National Statistics showed pay packets jumped almost 10pc in March, helping workers keep up with the cost of living, but also risking making inflation worse.
In February, Mr Bailey urged workers not to ask for a big pay rise this yearwarning that “moderation” of wage rises was needed to avoid further overheating the economy.
His comments were in contrast to Boris Johnson, who pledged at the Conservative Party conference last October to make Britain a “high-wage” economy.
The ONS said earnings in March shot up by 9.9pc on the year, with bonuses in the finance and construction industries helping pay packets keep up with the cost of living.
That is the sharpest single-month jump on records dating back to 2001. By contrast inflation is at a 30-year high of 7pc.
It comes after Andrew Bailey, the Governor of the Bank of England, warned of “second-round effects” from inflation, when a wave of price rises such as the energy bills shock feeds through the rest of the economy with higher wages and so further price rises in turn.
More pressure is on the way as employers struggle to find the staff they need.
The UK has more job vacancies than unemployed workers for the first time on record, putting a strain on businesses and threatening to drive up inflation even further.
The unemployment rate dropped to 3.7pc in the first three months of the year – below economists’ forecasts, and its lowest since 1974 – with 1.26m Britons out of work.
But after hundreds of thousands of people left the workforce during the pandemic, many employers are struggling to fill roles. There were a record 1.3m vacancies in the three months to April.
Tony Wilson, director of the Institute for Employment Studies, said Britain was in “the tightest labor market that we have seen in at least half a century”.
“It’s this recruitment crisis that is fueling higher private sector pay and bonuses and is also behind recent rises in interest rates,” he said.
“However, rather than trying to dampen demand, we need to be doing far more to boost labor supply, which would support economic growth, raise household incomes and help contain inflation.”
Samuel Tombs, from consultancy Pantheon Macroeconomics, said the labor market should “gradually slacken” through the rest of the yearreducing the upwards pressure on wages.
He said the number of graduates entering the labor market this autumn would be elevated, after the number of out-of-work university leavers swelled to abnormally high levels due to the pandemic.
“Immigration should rise too, now that all pandemic-related barriers have been removed, the number of businesses with sponsor licenses has increased considerably, and more jobs now meet minimum salary thresholds,” he said.
Martin Beck from EY ITEM Club said an expected slowdown in growth would likely lead to a fall in employment, adding: “the phenomenon of ‘Long Covid’ adds an extra layer of uncertainty to the speed and scale of any recovery”.