LONDON — Ben Broadbent, the Bank of England’s deputy governor for monetary policy, said that the very worst of the post-Brexit vote squeeze on British household finances will pass.
Speaking in an interview broadcast by BBC Radio Five Live’s Wake Up To Money, Broadbent said that while Brits are feeling the pinch, they should not expect it to last much longer as inflation will reach its post-referendum peak in the second half of the year, while wage growth will also begin to accelerate.
“I recognise that this is painful for people, but it’s about the maximum rate of pain we’re getting to right now,” he said.
With the return of inflation since June last year, a real and painful squeeze is underway for British households.Inflation, at the last reading, is running at 2.6%, while wage growth was just over 2%. Inflation’s surge from close to zero reflects the growing cost of imports triggered by the crash in the pound since the referendum.
This means that Brits are essentially earning less than prices are rising, squeezing their ability to spend on discretionary items.
Broadbent, however, reflecting the views expressed by the Bank of England’s Quarterly Inflation Report — which was released on Thursday — thinks that the peak is close, as inflation begins to fall and wage growth starts to pick up.
“That affect on inflation of the lower value of sterling, is however, nearing its peak. We’ll be with it for a while, but we think inflation peaks through the second half of this year, and will just begin to edge down through next year,” Broadbent said.
“We also think that wage growth will pick up, a little later on, but certainly in the next three years we expect faster wage growth.”
Broadbent’s comments come after the bank on Thursday said that regular Brits could start to work longer hours in order to combat the squeeze on their household finances triggered by the Brexit uncertainty affecting the economy.
Within a discussion of hours worked and wages, the bank’s Quarterly Inflation Report argued that the decline in real incomes since the Brexit referendum could push workers to simply try and earn more by working more to try and remain prosperous.
“The loss in real income as a result of the depreciation in sterling may also lead to some people wanting to work longer hours to make up that loss,” it said.