People urged by Bank of England economist to ‘accept’ being poorer
The Bank of England’s chief economist has urged people to accept they are poorer, warning that inflation risks remaining stubbornly high.
Huw Pill told a podcast that people and businesses have responded to higher bills and costs by asking for higher wages or charging their customers more money.
His remarks echoed warnings from Bank governor Andrew Bailey that large wage and further cost increases damage the Bank’s efforts to cool inflation.
The headline measure, the consumer prices index, remains above 10% despite consecutive interest rate increases since December 2021 to help cool demand, and therefore the pace of price growth in the economy.
While much of the inflation can be attributed to factors outside the Bank’s control, such as energy and food costs, it is worried about the ability of secondary effects, such as wage increases, making its job more difficult.
Its argument has consistently been dismissed by unions seeking pay deals to help cushion their members from the cost of living crisis.
Inflation is due to ease naturally, and sharply in the coming months, when the effects of the first big energy bill hikes are stripped out of the inflation data.
But the latest official figures showed higher wage increases than expected by economists, causing financial markets to price in that the Bank of England would respond with a further interest rate rise next month.
Mr Pill told the Columbia Law School’s Beyond Unprecedented podcast: “The UK, which is a big net importer of natural gas, is facing a situation where the price of what you’re buying from the rest of the world has gone up a lot, relative to the price of what you’re selling to the rest of the world, which is mainly services in the case of the UK.
Huw Pill is the Bank of England’s chief economist
“You don’t need to be much of an economist to realise that if what you’re buying has gone up a lot relative to what you’re selling, you’re going to be worse off.
“So, somehow in the UK, someone needs to accept that they’re worse off and stop trying to maintain their real spending power by bidding up prices whether through higher wages or passing energy costs on to customers etc.
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“What we’re facing now is that reluctance to accept that, yes, we’re all worse off and we all have to take our share; to try and pass that cost onto one of our compatriots and saying, ‘we’ll be alright, but they will have to take our share too’.
“That pass-the-parcel game that’s going on here, that game is one that’s generating inflation, and that part of inflation can persist.”
Business
Energy bills to rise again from January but spring falls to come, research firm Cornwall Insight forecasts
Energy bills are to rise again next year, according to a respected forecaster.
Costs from January to March are projected to rise another 1% to £1,736 a year for the average user, according to research firm Cornwall Insight.
The energy price cap, which sets a limit on how much companies can charge per unit of electricity, is also expected to rise, costing typical households an extra £19 a year.
It’s a further increase after energy costs rose 10% from October.
After the latest hike, there were hopes of a fall in the new year, but volatile wholesale gas and electricity markets are still above historic average costs.
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Prices have gone up due to supply concerns arising from Russia‘s war in Ukraine, and maintenance of Norwegian gas infrastructure.
But spring is expected to herald a reduction as is October 2025, Cornwall Insight said.
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‘Energy prices make me depressed’, pensioner Roy Roots said in August
Every three months energy regulator Ofgem revises the cap based on wholesale costs.
The official January price cap announcement will be made on Friday.
It comes as millions of pensioners lost their automatic winter fuel allowance payment after the government means-tested the benefit.
Meanwhile, Cornwall Insight’s principal consultant Dr Craig Lowrey warned “millions” of households won’t heat their homes to “recommended temperatures, risking serious health consequences” with bills on the rise.
“With it being widely accepted that high prices are here to stay, we need to see action,” he said, suggesting options like cheaper rates for low-income homes, benefit restructuring, or other targeted support for the vulnerable “must be seriously considered”.
The energy price cap system is being reviewed by Ofgem with possible changes to the standing charge coming over the next year.
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The long-lasting solution to high energy bills is the transition to UK-produced renewable power, the firm said.
“While there will be upfront costs, this shift is essential to building a sustainable and secure energy system for the future.”
The owners of Scotland’s only oil refinery have rejected a US-led approach about a possible bid for it months before its scheduled closure.
Sky News has learnt that a consortium said to be led by Robert McKee, an American energy industry veteran, wrote to Petroineos, the owner of the Grangemouth site, to express an interest in buying it.
The approach, which is understood to have been made earlier this month, was rejected by Petroineos, which is 50%-owned by the petrochemicals empire founded by the Manchester United FC shareholder Sir Jim Ratcliffe.
The consortium is understood to comprise The Canal Group, which is reportedly developing a green energy refinery in Texas, and Trading Stack, a Middle East-based commodities trader.
Mr McKee spent nearly four decades with ConocoPhillips, one of the biggest energy companies in the US.
Sources close to the situation said that Petroineos had rebuffed the offer in order to concentrate on a publicly announced plan to transform the century-old plant into a finished fuels import terminal.
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They added that the nature of the consortium’s approach had raised questions about its access to financing and expertise in operating an asset of this kind.
The Grangemouth refinery, which employs about 450 people, loses about £200m annually.
Its other shareholder is the state-backed Chinese energy giant PetroChina.
The site is due to close next year.
A person close to the consortium insisted that its financing was robust and said it would assess the feasibility of building a new refinery elsewhere in the area.
They added that the consortium had had “positive interactions” with trade union officials, and believed that there was scope to rapidly make Grangemouth’s refinery operations profitable.
On Monday, a spokesman for Petroineos said: “Since the Petroineos joint venture was formed 13 years ago, our shareholders have invested nearly £1bn in the refinery, only to absorb losses of £600m.
“Last week, the refinery lost £385,000 on average each day and we expect to lose more than £150m in total during the course of this year.
“We have not received any credible or viable bids for the refinery.”
A spokesman for the consortium declined to comment.
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