(Bloomberg) -- Bank of England Governor Andrew Bailey said he’s prepared to set monetary policy to offset inflationary pay raises.
Speaking on a panel in Sintra, Portugal, Bailey said there’s no one number that captures the scale of wage increase that would fit comfortably with the BOE’s target to contain prices.
He also said productivity gains should be part of what feeds into pay increases, an indication that employers can grant raises above the BOE’s 2% target without alarming policy makers. The comments feed into a debate about how much of a pay rise is appropriate in an economy where inflation is running at a 40-year high.
“If everybody tries to beat inflation ... we just can’t avoid that it will set the second round effects off,” Bailey said. “We are seeing some of that tension unfold. More people seem to be agreeing with me today than several months ago.”
“That’s why we will set monetary policy to offset those,” Bailey said. “We will have to do that, and that’s the code for saying, the more they emerge, the higher rates will have to be.”
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