The Bank of England plans the social counter-revolution

The Bank of England plans the social counter-revolution

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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.

Bank of England Governor Andrew Bailey seated during the Bank of England Financial Stability Report press conference, at the Bank of England, London, Thursday August 4, 2022. The Bank of England said the UK economy is expected to slip into recession in the last three months of the year. The bank said on Thursday that inflation would accelerate to more than 13 percent in the fourth quarter and remain “very high” for much of 2023. [AP Photo/ Yui Mok /Pool] [AP Photo/Yui Mok/Pool Photo]

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”.

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