Workers will have to make do with real wage cuts if Britain wants to avoid the “stagflation” of the 1970s and rising interest rates, Boris Johnson warned.
In a long speech, the prime minister made a startling reversal of a promise – made just months ago – to create a high-wage economy, instead highlighting the pain of rising inflation.
“We cannot adjust the increase in the cost of living just by increasing wages to match the rise in prices,” Mr Johnson said in a speech announcing the latest restoration of his troubled prime minister’s office.
He said: “If wages are constantly driven by rising prices, then we risk a spiral of wages and prices, as this country experienced in the 1970s. Stagflation – this is inflation combined with stagnant economic growth.
“When the spiral of wages and prices begins, there is only one cure and that is to slam the brakes on rising prices with higher interest rates.
“This has a direct impact on mortgages and rents. This increases the cost of business loans, it is bad for investment and growth, it is bad for jobs – it is bad for everyone. ”
The prime minister accused the war in Ukraine of “brutally interrupting” Covid’s recovery, while also shattering hopes of early tax cuts or higher spending to help families struggling.
He pointed to the “risk of borrowing too much”, telling his audience in Blackpool: “When you face inflationary pressures, you can’t just spend your time on them.
“On the contrary, you must be careful not to increase inflationary pressures. We are limited in what we can do. “
The TUC deputy secretary general angrily rejected the call for pay cuts as “nonsense”, saying that only a salary increase could provide “financial security”.
“It didn’t take long for the prime minister to abandon his commitment to a high-wage economy,” Paul Novak said.
“British workers have been suffering from the longest pay for more than 200 years. They urgently need more money in their pockets. ”
The prime minister’s call comes just weeks after No. 10 hit Andrew Bailey, the governor of the Bank of England, that workers must adopt wage limits to help control inflation.
Mr Johnson described the purpose of the speech as stressing that “price pressures will make things difficult for a while, but we will overcome them”.
But apart from widely criticized ideas for increasing home ownership, it contained no new measures other than a hint that tariffs on imported foods such as olive oil and bananas would be abolished.
Mr Johnson seems to have dismissed speculation that he plans to cut the pre-election income tax by 2 pence – and has moved away from two options to get in trouble with companies that refuse to transfer fuel tariff reductions to pumps.
Asked why the UK had collapsed to the bottom of the world economic growth table, he said the UK had “come out” of Covid first, meaning it was “slightly out of sync” with other economies.
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