View more on these topics

King: Squeeze on living standards is the “inevitable price” for financial crisis


Bank of England governor Mervyn King has said that a squeeze in living standards is the inevitable price to pay for the financial crisis and the recovery of the UK and global economy.

Speaking in Newcastle last night, King said that a mixture of rising inflation and stagnant wages meant that UK wage earners were set for hard times and that this has resulted in the longest decline in take-home pay in the UK since the 1920s.

King said that the UK was set to see inflation rates jump to between 4 and 5 per cent in the next few months, highlighting the need to adjust to rising commodity and energy prices, before falling quickly in 2012. He also said the BoE would stop attempts to push up wages to meet those higher prices.

King said rising commodity and energy prices were one of three factors that saw inflation jump to 3.7 per cent in December 2010, with higher import prices due to the weak pound and the rise in VAT also to blame.

He said all three factors contributed to the equivalent of 3 percentage points to the inflation rate each year for the past four years and that without these external and temporary factors UK domestically driven inflation would be almost zero in that timeframe.

King said that if the BoE had tried to counteract the rising prices by raising interest rates, it would have led to falling wages.

Earlier in the day the Office for National Statistics announced a shock 0.5 per cent contraction in the UK economy in the final quarter of 2010, something many experts have said will delay any plans by the BoE to raise interest rates.

King said he disagreed with the Government’s view that the figures were due to poor weather conditions and that the figures backed up his assertion that the recovery would be “choppy”.

He said: “Even abstracting from the effects of snow, growth at home slowed in the second half of last year.”


News and expert analysis straight to your inbox

Sign up


There is one comment at the moment, we would love to hear your opinion too.

  1. Financial Crisis! Is this the financial crisis caused by the malmanagement of the economy Mervyn? Now who helped fuel that I wonder?

Leave a comment


Why register with Money Marketing ?

Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

News & analysis delivered directly to your inbox
Register today to receive our range of news alerts including daily and weekly briefings

Money Marketing Events
Be the first to hear about our industry leading conferences, awards, roundtables and more.

Research and insight
Take part in and see the results of Money Marketing's flagship investigations into industry trends.

Have your say
Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

Register now

Having problems?

Contact us on +44 (0)20 7292 3712

Lines are open Monday to Friday 9:00am -5.00pm