The Bank of England (BoE) raised interest rates by 0.5 percentage point to 1.75, the biggest rise in 27 years. She did so as the UK is about to enter a long period of recession and will drive up unemployment and social hardship for millions.
The Bank of England’s Monetary Policy Committee (MPC) announced its decision on Friday. The rate hike is part of aggressive moves by the world’s major central banks, led by the US Federal Reserve and European Central Bank, to ‘crush’ demands for higher wages amid the biggest cost of living crisis. since the 1930s.
In its statement on Friday, the BoE said inflation had “significantly intensified” since its May monetary policy report and the previous MPC meeting, saying “this largely reflects a near doubling of inflation.” wholesale gas prices since May, due to the restriction of gas supplies by Russia to Europe and the risk of further limitations.
She predicted that consumer price index (CPI) inflation would reach more than 13 percent by October and “remain at very high levels for much of 2023”, mainly due to the lifting of energy price caps. Domestic energy bills are expected to rise a further 65 percent in October and again in January.
The BoE has made it clear that its main concern is to contain demands for higher wages. Governors complained vacancies were at “historically high levels” with unemployment at just 3.8 percent. This, combined with labor shortages in key sectors, encouraged strong “underlying nominal wage growth” and a large “recently negotiated wage increase”.
Despite wages lagging inflation, the BoE sounded the alarm on private sector wage growth of 5 percent from 3.5 percent before the pandemic. She warned that public sector wages are expected to rise by 4 percent, up from 1.8 percent in the three months to May.
Significantly, the BoE’s survey of employers ‘suggested that companies expected to raise wages by around 6 per cent in negotiations over the next twelve months’, less than half the current rate. of the inflation measure of the RPI (the consumer price index), but sufficient to crush the BoE.
The bank explained that “the pressure on wage growth” can only be combated through recessionary policies, including raising unemployment by at least 600,000 next year.
The bank’s governors described the risks to the economy from external and domestic “shocks” as “exceptionally large”.
By raising interest rates, the BoE is enforcing the dictates of financial markets, corporate boards and banks in response to a growing wave of industrial action and wildcat strikes that threatens to snowball. Its supposedly impartial economic pronouncements are a class war agenda.
The working class is going to be forced to pay for a global inflationary crisis triggered by: 1) trillions of pounds of corporate and financial bailouts by central banks during the pandemic, 2) NATO’s proxy war against Russia which led to increases in fuel and commodity prices, and 3) the unprecedented commercialism of the financial oligarchy which inflated the prices of global assets around the world.
The ruling elite intends to impose the largest ever increase in defense spending to wage war on Russia and China via a frontal assault on the working class.
His tightening of monetary policy is above all a response to the eruption of strikes involving hundreds of thousands of workers after decades of repression of the class struggle.
Strikes by British railway, post and telecom and bus workers have already taken place, and this week saw wildcat strikes over wages at three Amazon warehouses and a food manufacturing company. The ruling class fears that this movement will spread, in a context where nurses, doctors, teachers, firefighters, lecturers, civil servants, lawyers and community workers are determined to strike after seeing each other deliver wage increases of just 2 percent that will push millions of people over the edge.
The Bank’s goal is to counter this growing tide of militancy by forcing desperate workers to accept further brutal pay cuts or face mass unemployment and financial ruin.
While workers’ wage demands are blamed for driving inflation, the real cause is a skyrocketing rise in corporate profits. Amid the pandemic and NATO’s proxy war against Russia, extreme profits are responsible for about 60 percent of the rise in inflation.
Record profits of almost £50 billion have been announced by the world’s five largest oil companies, including £6.9 billion for BP between April and June and $11.5 billion for Shell. A June 2022 report by trade union Unite notes that the top 350 companies listed on the London Stock Exchange saw profits jump 73 percent in 2021 compared to the year before the pandemic. UK-wide corporate profits jumped 11.74 per cent in the six months from October 2021 to March 2022.
At the other end of the scale, average wages remain no higher today than they were before the 2008 financial crisis, a loss of £9,200 a year. As a result, runaway inflation means more than two million homes are left without “heat and nothing to eat,” according to the Joseph Rowntree Foundation, and seven million families are living through a “scary year of financial scare.”
Low-income households borrowed £12.5bn in new debt in 2022, including £3.5bn from mortgage moneylenders and loan sharks. Now they will be hounded for higher loan repayments. Rising interest rates will also affect home loan repayments. With average house prices already nine times the average annual income, millions will be bankrupt.
Half of families have savings of less than one month’s income and more than 1.3 million households have no savings. As UK energy bills will double to almost £4,000 this winter, alongside soaring food prices, the number of families without savings will reach 5.3million. For 1.2 million families, food and energy costs alone will exceed their disposable income.
In this volatile situation, the ruling class relied on the unions to impose de facto wage cuts by isolating and repressing strikes and accepting cut-rate wage deals. This caused real wages to fall by 3.7 percent in the three months to the end of May.
But this cannot continue. Massive social anger threatens to erupt beyond the unions’ control.
Raising interest rates is only one aspect of the ruling class’ offensive. The Conservative government is using its leadership race to shape the most right-wing political agenda since the 1930s and introduce a panoply of repressive measures against the right to strike and demonstrate.
The role of the Labor Party is essential in the application of this programme. Its leader, Sir Keir Starmer, denounces “magic money tree economics” almost as often as he condemns strikes. Speaking to BBC Radio Merseyside, he said Labor was ‘very clear that we are unwaveringly behind NATO, being very clear that we are resolutely pro-business, we work with business’.
The battle facing the working class is not just against one employer or another but against the entire capitalist class, its state and its parties.
To defeat this ruling class conspiracy, workers must combine a social offensive waged independently of the union bureaucracy through the formation of rank-and-file committees in every workplace, with a political struggle directed against the big business parties.
The Socialist Equality Party demands immediate general elections to unmask and defeat the ruthless plans of the Conservatives and Labor and advance the fight for a genuine socialist alternative to austerity, the ongoing pandemic and the growing danger of world war.
(Article published in English on August 8, 2022)
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