Workers will have to settle for real-life wage cuts if the UK wants to avoid 1970s-style “stagflation” and rising interest rates, Boris Johnson warned.
In a keynote speech, the Prime Minister took a surprising turn on the promise, made just a few months ago, of creating a high-wage economy, rather than highlighting the pain of rising inflation.
“We can’t fix the rising cost of living just by raising wages to match rising prices,” Johnson said in a speech that was the last reinstatement of his troubled prime minister.
He said: “If wages continue to chase rising prices, then we run the risk of a wage-price spiral like the one that this country experienced in the 1970s. Inflation: that is, inflation combined with economic growth. stagnant.
“When a wage-price spiral begins, there is only one cure and that is to curb the rise in prices with higher interest rates.
“This has an immediate impact on mortgages and rents. It raises the cost of loans for businesses, it’s bad for investment and growth, it’s bad for jobs, it’s bad for everyone. “
The prime minister blamed the Ukrainian war for “brutally disrupting” Covid’s recovery, as well as destroying hopes of early tax cuts or increasing spending to help troubled families.
He pointed to “the risk of borrowing too much,” he told his audience in Blackpool: “When you face inflationary pressure, you can’t afford it.
“On the contrary, we must be careful not to increase inflationary pressures. We are limited in what we can do. “
The TUC deputy secretary-general angrily dismissed the call for a pay cut as “nonsense”, arguing that only salary increases can provide “financial security”.
“It simply came to our notice then.
“British workers are suffering the longest wage crackdown in more than 200 years. They urgently need more money in their pockets.”
The Prime Minister’s call comes just weeks after the No. 10 hit Andrew Bailey, the governor of the Bank of England, to say workers must accept wage restrictions to help control inflation.
Johnson described the purpose of the speech as saying that “price pressures will make things difficult for a while, but we will overcome them.”
But beyond the widely criticized ideas for promoting home ownership, it contained no other new measures beyond a clue that tariffs on imported foods such as olive oil and bananas would be removed.
Johnson seemed to reject a suggestion that he planned a 2p income tax cut before the election, and dodged two opportunities to get tough with companies refusing to lower fuel taxes on bombs.
When asked why the UK has fallen to the bottom of the world economic growth league table, he argued that the UK “came out” first of Covid, which meant it was “slightly out of sync” with other economies.