The UK economy is staging a strong recovery following the challenges created by the Covid-19 pandemic.
According to Bank of England chief economist Andy Haldane, the economy is “going gangbusters”, but that raises the concern of price inflation.
Haldane said that the UK needs a pay rise if the economic recovery continues going in the right direction.
Speaking to LBC Radio, Haldane explained that the Bank of England’s inflation target of 2% was undershot for the duration of the pandemic. With inflation now rising towards that target, Haldane said:
“Two is a pretty good number, the risk is that we might overshoot that number for longer than we planned. That is not good news. We need to avoid any temporary blip in inflation becoming embedded.”
He also explained that, while the UK economy is currently surging, it could do even better, saying:
“Growth across the UK is picking up, going gangbusters actually, outstripping growth in the G7, it is still the case though that a bunch of businesses are paused and a bunch of workers are on furlough, so we need to keep up the momentum, get people back into pubs and restaurants.
“We should aspire to better. We need to keep spending demand in the economy strong, that is what creates demand for workers. It might require a few pay rises to make that happen. That will be one of the factors that will encourage people to get off their sofas.”
Haldane also praised the government response to the pandemic, saying of Chancellor Rishi Sunak:
“The Chancellor has played a blinder, we went in big and we went in fast.”
On inflation, Haldane explained that there is some ‘pretty punchy pressure’ on prices, and it is currently difficult to find any goods or services that are not going up in price. He said:
“If both pay and costs are picking up, inflation on the high street isn’t very far behind. That may mean at some stage we need to start turning off the tap when it comes to monetary policy support.”