Bank chief's comments on pay rises 'out of touch'

Small businesses and unions have hit back at the Bank of England's chief economist saying people need to accept they are poorer otherwise prices will keep rising.

Huw Pill said a game of "pass the parcel" of workers asking for wage rises and businesses passing on higher costs was fuelling inflation.

He added there was a "reluctance to accept" households were worse off.

But the Federation of Small Businesses said his comments were "out of touch".

Tina McKenzie, policy chair of the trade body, said small firms had been left with no choice to pass on the "huge increases they have seen for energy and input costs" to customers.

"In many cases even that is not enough to fill the gap," she added.

Ms McKenzie said many firms were "only just hanging on day by day", were not able to invest and were cutting costs.

Amanda Gearing, a senior organiser for the GMB union, said it was "absolutely outrageous to be honest, asking some of our lowest paid workers in this country, not to take a pay increase when inflation is so high".

"People can't afford to live, they're not able to pay their rent or put food on the table," she told the BBC's Today programme.

Paul Nowak, the TUC general secretary, added people didn't "need lectures" over pay and called for a plan to "make sure workers get their fair share".

UK inflation, which is a measure of the increase in price of something over time, hit 10.1% in the year to March.

For example, if a pint of milk cost £1 but went up to £1.10 a year later, then annual milk inflation is 10%.

March's inflation figure was slightly lower than February but the fall does not mean prices are coming down, it means they are rising at a slightly slower pace.

Part of the Bank of England, which is the UK's central bank, is to try to keep inflation at its target rate of 2%. The Bank is charged with setting interest rates and in response to the inflation rate going up in recent times, it's officials have increased interest rates - which make the cost of borrowing money more expensive for people and businesses.

This strategy, in theory, is meant to make people cut back on spending so that demand for goods reduces and prices slow down or even fall.

But with the strain of rising prices being felt by households trying to pay higher energy bills and food costs, many people have asked for pay rises to help ease the cost of living.

People working across several industries, such as rail, the NHS and government civil servants, have gone on strike in recent months over various reasons including pay.

And with job vacancies still being higher than they have been in previous years, workers have had a stronger hand in asking their employers for more money.

Mr Pill, who once was a economist at Goldman Sachs, told the Beyond Unprecedented podcast from Columbia Law School that people demanding higher pay and businesses passing on increase costs by putting prices up, added to inflation and caused prices to rise even further across the economy.

"Somehow in the UK, someone needs to accept that they're worse off and stop trying to maintain their real spending power by bidding up prices, whether through higher wages or passing energy costs on to customers etc," he said.

"What we're facing now is that reluctance to accept that, yes, we're all worse off and we all have to take our share.

"That pass-the-parcel game that's going on here, that game is one that's generating inflation, and that part of inflation can persist."

Thomas Moore, senior investment director at Abrdn, told BBC 5Live Mr Pill's words "need to accept" was a "red rag to the bull".

But he added: "You can see that underlying all of this, he has got a point which is as long as inflation stay highs, we are going to demand higher wages and as long as we demand higher wages, inflation is going to stay high."

Although pay has been going up, it has not matched inflation, meaning people are worse off.

There has been arguments by some economists that employers giving out large pay rises could spark a "wage-price" spiral, when pay increases help force prices up and high inflation lasts for a longer time.

This happened in the 1970s, but back then, the surge in wages came before the rises in prices for goods.