Public sector wage rises and strikes threaten economy, says Summers
As the UK leads the developed world with its inflation rate heading towards 11%, one well-respected commentator has told the Bank of England that it should follow the US Fed’s example and raise rates even harder than the US has.
Speaking to The Times, about the UK’s inflation outlook, ex Clinton and Obama adviser Larry Summers said “UK monetary policy should be more severe, not less, than policy elsewhere.”
The comments come as official figures show that the country’s inflation rate has broken the record of 9.1% set in 1982 – the year the Falklands War broke out, the TV Show Countdown started its long run, and the BofE’s base rate was actually falling – down to 10% after peaking at over 14% the previous year.
Housing and utilities were a major factor in the overall increase – they showed a whopping 19.4% YTD climb.
Summers thinks that the BoE should be setting a far more hawkish tone – although that it has said that it will ‘act forcefully’ if the need arises, and it has raised interest rates five times, each has been a relatively modest amount – the US Fed raised rates last month by the most it had in 28 years – a jaw dropping 0.75%, which many think could be rapidly followed by another big jump.
The spiralling cost-of-living in the UK is also driving public sector employees to demand pay rises, and Summers sees this as simply pouring petrol on a super-hot inflation spiral.
“I think the wave of strike activity that appears to be in prospect suggests that in some ways the risks of inflation becoming entrenched in Britain are significantly greater than in other parts of the world,” he told The Times.
And if the BoE is watching the Fed, we could be in for a bumpy ride – multiple economists are predicting another 0.75% raise next month to try to put the brakes on a runaway US property market.