Mervyn King

Pay freeze “necessary” for economic recovery, says BoE

Businesses should not offer pay rises despite current high inflation or they could risk damaging the UK’s economic recovery, the Bank of England (BoE) has warned. BoE governor, Mervyn King, said that the current inflation rate of 3.7% (CPI) may increase to 5 % in the coming months, before dropping sharply in 2012. He cautioned employers against raising wages to counteract the effects of high inflation. “The squeeze in living standards is the inevitable price to pay for the financial crisis and subsequent rebalancing of the world and UK economies.” He added that if the Bank of England tried to counteract the rising prices by raising interest rates, it would simply lead to falling wages and therefore the same loss in purchasing power, but at the expense of an even deeper recessio... »