Pay squeeze vital, says BoE governor

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Bank of England governor Mervyn King has warned that workers across Britain could be hit with pay freezes this year and suggested restraint is necessary to keep a lid on inflation.

Speaking at an event in Newcastle, Mr King explained that although energy costs remain on an upward trend, increases in annual salaries should be kept to a minimum considering the UK's fragile economic backdrop.

"Further rises in world commodity and energy prices cannot be ruled out," he told delegates. "Attempts to resist their implications for real take-home pay by pushing up wages would require a response [from the Monetary Policy Committee]."

However, Mr King also sought to play down speculation that the Bank could be set to boost interest rates from their current record low, implying that doing so could jeopardise economic confidence at a particularly sensitive point.

Inflation has become a major talking point in recent months, with Office for National Statistics data published earlier in January revealing that it rose to 3.7 per cent in December – well above the central bank's two per cent target.

Posted by Hayley Edwards

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