Aurelia Butler

Andrew Bailey has acknowledged for the first time the Bank of England is dealing with a UK wage price spiral as he pledged to raise interest rates as far “as necessary” to get inflation back to the bank’s 2 per cent target. Speaking to the British Chambers of Commerce annual conference in London, the BoE governor said the UK was experiencing “second-round” effects of inflation, highlighting the spread of rapid price rises from energy and food into generalised wage and price setting by companies. “Some of the strength in core inflation reflects the indirect effects of higher energy prices,” Bailey said. “But it also reflects second-round effects as the external shocks we have seen interact with the state of the domestic economy. And as headline inflation falls, these second-round effects are unlikely to go away as quickly as they appeared.”Throughout 2022 and into this year, the BoE has repeatedly said it was trying to stop the risk of high energy and food costs affecting domestic wages and prices. It has now admitted it failed in that task. The governor said that one of the pieces of good news in the economy was that wage growth had fallen slightly and “near-term indicators suggest that pay growth could ease further later this year”. But the BoE’s Monetary Policy Committee was looking for further progress before it would be convinced it had restored price stability to the UK economy. “The outlook for inflation further out is more uncertain and depends on the extent of persistence in wage and price setting,” Bailey said, adding that “the committee will continue to monitor closely the indicators of persistence in inflationary pressures”. “I can assure you that the MPC will adjust Bank Rate as necessary to return inflation to target sustainably in the medium term, in line with its remit,” Bailey said. The governor’s words were echoed by chancellor Jeremy Hunt, who said at the same conference there was “nothing automatic” about bringing inflation down. After it emerged last week that the BoE thought there was close to a 50:50 chance it would miss Rishi Sunak’s target to halve inflation this year, Hunt refused to criticise the BoE in its fight against inflation.

“The Bank of England has their role through monetary policy and interest rates, we support them 150 per cent in that,” he said. Hunt also waded into the Conservative party squabble on immigration, calling for the UK to maintain a pragmatic stance on the issue. “If you look at what’s happened since the Brexit vote, since we left the single market, the government has been pragmatic when it comes to immigration requirements,” he said. At the same conference, which Bailey addressed having pulled out of the CBI’s equivalent before it was cancelled, BCC director-general Shevaun Haviland sought to position the body as being an advocate “for every business”. She did not mention the CBI, the business lobby group that has suspended operations after a misconduct scandal, but said business needs a “fresh relationship with government”. “With a general election less than 18 months away we are at a pivotal moment for the voice of British business,” Haviland added. More

White House spokeswoman Karine Jean-Pierre, in interviews on MSNBC and CNN, said Biden would speak with top lawmakers by telephone during his trip to the Group of Seven gathering in Japan as negotiations over the U.S. debt ceiling continue.”The president is looking forward to having conversations with the congressional leader on the phone and meeting with them again when he comes back from overseas,” she told MSNBC.Asked on CNN if Biden wanted the debt limit agreement to cover payments through 2025, Jean-Pierre declined to answer. She also did not detail where negotiations were over work requirements for two key programs that provide food and cash aid to families that Republicans want to see included as part of a deal.”The Republican proposals – they want to cut health care, they want to increase poverty, and it’s not going to save much money,” she told CNN, adding that daily staff talks between both sides were expected to continue.Biden, a Democrat, on Tuesday called his meeting with House Republican Speaker Kevin McCarthy at the White House productive and postponed plans to visit Papua New Guinea and Australia, cutting short his Asia trip so he can return to Washington.While the United States still sees the Indo-Pacific region as a key global alliance, “the other message too, is that …America does not default on its debt,” Jean-Pierre told CNN. “He’s optimistic that we’ll get to a reasonable, bipartisan budget deal that can get to his desk next week that he can sign,” she added. More

BUENOS AIRES (Reuters) – In Juan Capano’s shoemakers’ workshop on the outskirts of Buenos Aires, 109% inflation makes a painful daily impact: constantly changing input costs for the leather, laces and rubber that workers assemble into boots at whirring machines.Argentina is battling one of the highest inflation rates in the world, with prices growing faster at any time since 1991, raising the specter of hyperinflation and full-blown economic crisis. Four in 10 people are in poverty, while strict currency controls mean dollars trade in unofficial markets at twice the price of the official rate, inflating the cost of imports.”It is the worst moment for the footwear industry. The worst ever in terms of salary, production, in terms of everything,” said 56-year-old Capano, recalling the hyperinflationary period of the early 1990s as the last such comparable time.What it meant for small businesses like his, he said, was supplier prices changing almost daily. The clothing and footwear sector experienced the highest monthly inflation of all categories in April at 10.8%, data from statistics agency INDEC show. The overall rise was 8.4%.”Suppliers all bill me in pesos and prices change every day. There are price lists sometimes from important suppliers that we get daily, from others twice a week for sure,” he said, adding that the difficult situation was compounded by high taxes and slower sales.Despite shrinking profit margins and uncertainty, Capano said he wanted to avoid lay-offs among his 40 workers, a wider trend that has seen employment levels hold up, for now. Capano said he felt an obligation to support workers’ families. Argentina also has strong labor laws that make it hard to fire employees.Sales, however, have stalled as hard-hit consumers tighten their belts, Capano and others said.”We sense people want to buy but they just can’t afford to,” said Gustavo Casabe, 57, a shoe store owner, who has been trying to spur sales by letting people pay in interest-free installments.In a clothing market in the capital, traders pointed to higher import prices, given volatile exchange rates. The peso hit almost 500 to the dollar in parallel markets last month, while the official rate is around 231.”Most of us work with imported goods, the fabrics are imported. Prices fluctuate all the time because of the dollar,” said trader Susana Habib. “Your cannot have four or five different exchange rates. It’s just impossible.”Shoppers said it was getting harder to afford clothing and fabrics as prices outstripped salaries. Sellers, meanwhile, pointed to changing habits, including more people looking to restore old clothes rather than buying new ones.”I’ve seen people bring in a wedding dress so I can transform it into a quinceanera (fifteenth birthday) dress,” said designer Maria Teresa Pedulia.”I never used to fix clothes, but people fix clothes now because they cannot afford to buy them.” More

“There are signs that the labour market is loosening a little,” Bailey said in a speech to the British Chambers of Commerce, citing an increase in the numbers of people seeking work and a drop in vacancies in data published on Tuesday.He said there were signs that pay growth could ease further later this year.”But the easing of labour market tightness is happening at a slower pace than we expected in February, and the labour market remains very tight,” Bailey said.The BoE last week raised interest rates for the 12th time in a row, taking Bank Rate to 4.5%, and investors on Wednesday were pricing a roughly two-in-three chance of a further 25 basis-point increase at the central bank’s June meeting.However, some of the bets on further BoE rate hikes this year were pared back after Tuesday’s data suggested some of the inflationary heat was coming out of the labour market.The BoE has said it will watch the economic data closely before announcing its next decision on June 22. Official data releases due between now and then include two sets of inflation figures and another round of labour market data.Bailey said on Wednesday that even if headline inflation falls quickly this year, as expected, second-round effects – which are typically demands for higher wages – were “unlikely to go away as quickly as they appeared.”He also said “things are looking a bit brighter than they did a couple of months ago” for Britain’s economy, reiterating the message of the BoE’s latest forecasts published last week which no longer saw the possibility of a recession. More