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Families will see their disposable income eaten away as they “pay the inevitable price” for the financial crisis, Mervyn King warned.
With wages failing to keep pace with rising inflation, workers’ take-home pay will end the year worth the same as in 2005 — the most prolonged fall in living standards for more than 80 years, he claimed.
Mr King issued the warning in a speech in Newcastle upon Tyne after official figures showed that gross domestic product fell by 0.5 per cent during the final three months last year, increasing fear that the country is poised to slip back into recession.
Disposable household income has been hit by sharp increases in the cost of food, fuel and tax, coupled with restricted wage rises for most workers. Last year, take-home pay fell by about 12 per cent, official figures showed, and the trend is expected to continue in 2011 (nb a back drop for recovery - I don't think so)!
The governor warned that the Bank “neither can, nor should try to, prevent the squeeze in living standards”. He said that the economic figures were a reminder that the recovery will be “choppy”. However, he said the biggest threat facing the Bank’s Monetary Policy Committee, which sets interest rates, was rising inflation.
The Bank is expected to use interest rates to keep inflation below two per cent, but the governor said inflation could rise “to somewhere between four per cent and five per cent over the next few months”.
He claimed that rising inflation had been caused largely by increases in global oil and commodity prices, and tax rises such as the increase in VAT introduced at the beginning of the year, which the Bank was powerless to control (nb not true, as 'quantitative easing', or 'printing money', devalued the pound and increased import prices).
“In 2011, real wages are likely to be no higher than they were in 2005,” he said. “One has to go back to the 1920s to find a time when real wages fell over a period of six years.
“The squeeze on living standards is the inevitable price to pay for the financial crisis and subsequent rebalancing of the world and UK economies.” (nb this statement shows they've known all along who will pay for bankers' greed).
Mr King insisted that the Monetary Policy Committee could not have increased interest rates from their current record low level to tackle the rise in inflation. (nb they did not however have to embark upon quantitative easing, which pushed up inflation, and served to only benefit the banks)
“If the MPC had raised the Bank Rate significantly, inflation might well have started to fall back this year, but only because the recovery would have been slower, unemployment higher and average earnings rising even more slowly than now,” he said.
“The erosion of living standards would have been even greater. The idea that the MPC could have preserved living standards, by preventing the rise in inflation without also pushing down earnings growth further, is wishful thinking.”
He added: “Monetary policy cannot be based on wishful thinking. So, unpleasant though it is, the Monetary Policy Committee neither can, nor should try to, prevent the squeeze in living standards, half of which is coming in the form of higher prices and half in earnings rising at a rate lower than normal.” (nb see later on to understand their plan with respect to the latter).
“The Bank of England cannot prevent the squeeze on real take-home pay that so many families are now beginning to realise is the legacy of the banking crisis and the need to rebalance our economy.”
The comments represented one of the governor’s starkest warnings yet, and yet alongside his apparent sympathy lies a very different truth ... as instead of expressing apparent frustration at not being able to prevent the squeeze in take-home pay, the Governor was actually telling us he wants to make sure take-home pay continues to be squeezed (by keeping down pay)! He said "attempts to resist the implications for real take-home pay by pushing up wages would require a response" from the Bank's monetary policy committee (i.e. they'll raise interest rates), implying that the Bank plans to thwart attempts by wage-setters to keep up with the above-target price rises (i.e. stop above 2% pay settlements). This sinister threat was almost 'hidden' from view, under a veil of sympathy, from someone we cannot trust.
Mr King's feigned sympathy for savers and highlighted the failure of lenders to pass on cuts in interest rates. “I sympathise completely with savers and those who behaved prudently now find themselves among the biggest losers from this crisis,” he said. “But a return to economic stability from our fragile condition will require careful and well-judged steps looking beyond the next few months.”
He chose not to mention the big winners in the crisis, i.e. the bankers! Yet his claim that the banking crisis was behind the ongoing squeeze on living standards also comes at a sensitive time as the banks, who indeed created this crisis, under the watchful eye of the Bank of England, announce multi-million pound bonuses for their executives and whose current speculation is continuing to push up commodity prices (and hence inflation)!
Oh they must see the people in the UK as bunch of 'mugs', or more specifically a group of ignorant and apathetic people!
