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British lawmakers warn of risk of wage-price spiral

© Reuters. FILE PHOTO: Britain’s Chancellor of the Exchequer Rishi Sunak attends a virtual press conference inside 10 Downing Street in central London, Britain March 3, 2021. Tolga Akmen/Pool via REUTERS

By David Milliken

LONDON (Reuters) – British lawmakers warned on Thursday that the government’s push for higher wages risked increasing inflation if it was not accompanied by greater productivity.

Prime Minister Boris Johnson called for a “high wage, high skill, high productivity” economy in a speech to his Conservative Party’s annual conference in October.

Later that month finance minister Rishi Sunak announced a 6.6% increase in the main rate of the minimum wage to 9.50 pounds ($12.84) an hour from April 2022 as part of his budget speech.

In a response to Sunak’s budget, published on Thursday, parliament’s cross-party Treasury Committee warned that the government must not lose track of the need to boost economic productivity, which is lower in Britain than in the United States, Germany or France.

“While the Prime Minister’s ambition to promote high wage growth is worthy, focusing on increasing wages without improving productivity is likely to be inflationary, and risks contributing to a wage-price spiral,” committee chair Mel Stride said.

British consumer price inflation hit its highest since March 1992 in December at 5.4%, while average weekly earnings in the three months to November were 4.2% higher than a year earlier.

The Bank of England — which aims to keep inflation near 2% — is concerned about signs that high inflation driven by a surge in energy prices might push up wage demands and companies’ pricing plans for 2022, making it slow to return to target.

The BoE is widely expected to raise interest rates to 0.5% next week, which would be the second increase in less than two months.

($1 = 0.7396 pound)

British lawmakers warn of risk of wage-price spiral

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