Hard Times Ahead, Warns Governor
With inflation above target, Bank of England Governor and Chancellor have both urged restraint on pay rises. However, there are signs that Unions are beginning to flex their muscles.
Governor of the Bank of England, Mervyn King, has warned Britain that it must be ready for rising fuel, food and mortgage bills, but pay rises at less than inflation. Britain, he said in a speech at Mansion House, is facing ’the most difficult economic challenge for two decades’.
Most of the country will already be well aware of the problems.
King said that the Bank would take action as necessary to bring inflation back down to the target of 2%, from its current level of 3.3%. This is a hint that interest rates are likely to start going up again.
At the same occasion, Chancellor Alistair Darling agreed with King, saying that big pay rises are a thing of the past. A return to large pay settlements, he said, would lead to a damaging circle of wage increases and inflation. However, he said that a recession was not on its way and the economy would continue to grow.
Despite the warnings, there are signs that Unions are not willing to accept the situation. Shell tanker drivers look set to receive a pay rise well above the official inflation rate. Union leaders have said that their members would be unwilling to accept pay rises below the level of inflation.
Public services union, Unison, is recommending that its 800,000 members in local government reject the 2.45% offer, and vote to strike. These include social workers, dinner ladies and teaching assistants. Unison also said it would ignore an NHS pay deal agreed only yesterday if inflation kept rising.
The government has kept saying throughout the credit crisis that the UK economy was strong enough to see us through problems, and that employment remained strong. However, a recent Bank report has indicated a worsening outlook in the jobs market. The report said that employers are looking to recruit temporary or freelance workers, rather than commit to the costs associated with a full-time worker.
