Wages need to rise to encourage Britons to get “out of their front rooms” and back into work to help support the UK’s recovery, according to the Bank of England’s top economist.
Andy Haldane, interest rate setter and outgoing chief economist at the Bank, said the UK’s recovery was going “gangbusters”, but that businesses on pause need to reopen and furloughed or unemployed workers need to get back to jobs to keep up the momentum.
He told LBC radio that spending in the economy needs to be boosted to support employment, but that better-paid jobs also need to be created to get people off furlough support.
Mr Haldane said: “It might require a few pay rises… that should encourage people out of their front rooms and off their sofas and back into the world of work.”
He added it was about “creating the jobs and creating enough well-paid jobs to encourage people back to work”.
Mr Haldane – who is leaving the Bank at the end of this month to become chief executive of the Royal Society for Arts, Manufactures and Commerce – warned that as UK growth recovers at a “rate of knots”, there is the risk that inflation may rocket.
The chief economist said the UK was already seeing some “pretty punchy pressure on prices”, with wages starting to rise and increased costs of goods such as petrol, diesel, timber and cement.
He added that “inflation on the high street isn’t far behind” and that the Bank may look to trim its vast quantitative easing (QE) money printing programme to keep price rises under control.
“We could start tightening the tap on that, slowing down the amount of money we’re printing and ultimately perhaps even to turn that around,” he said.
Mr Haldane voted last month to cut the Bank’s £895 billion QE programme by £50 billion in light of the UK’s recovery prospects.
In the interview with LBC, he said that inflation – already running at 1.5% – was set to go above the Bank’s 2% target, but that the Bank needed to ensure that this temporary blip does not become embedded.
“That needs to be avoided at all costs,” he said.
Mr Haldane said he thought Chancellor Rishi Sunak had “played a blinder” in his handling of the response to the pandemic, but added he believed specific support could now be needed for the hard-hit travel sector as it faces a summer of disruption and ongoing restrictions.
He also said it would be “fantastic for the economy” if all social distancing restrictions lift on June 21.
Mr Haldane said: “It would mean that businesses could plan for a good summer and therefore would open up.
“It would mean that workers in those industries could plan for a good summer and socialise and spend.
“It would put the mojo back into both businesses and workers in a way that would I think lift our growth rates back up further above the levels we see across Europe and elsewhere.”