Chancellor calls for pay restraint

Updated 06.33 Thu Jun 19 2008

Keywords: inflation, economy, alistair darling, money, business, britain

The Chancellor Alistair Darling has urged wage restraint in both the public and private sectors to avoid spiralling inflation.

In the Chancellor's annual speech at Mansion House, Mr Darling insisted the UK economy will continue to grow and avoid recession.

"Continued restraint on pay is required from both the public and private sector" - Alistair Darling

He also confirmed his plans to give the Bank of England legal responsibility for financial stability and strengthen regulation of financial services.

A Financial Stability Committee, including members drawn from outside the Bank of England, will sit alongside the Monetary Policy Committee which sets interest rates.

Earlier this week, Bank of England governor Mervyn King was forced to write a letter of explanation to Mr Darling because inflation had reached 3.3 per cent.

Mr King warned inflation could reach 4 per cent by the end of the year and the Chancellor is worried prices will continue to rise if wages increase.

He said: "Continued restraint on pay is required from both the public and private sector.

"We must recognise the need to reward efforts of people who work hard. But to return now to inflationary pay settlements would undermine rather than raise people's living standards with a damaging circle of wage increases eroded by steadily rising prices.

"We must never return to those days."

Mr Darling also tried to allay fears that rising inflation could coincide with economic stagnation.

He added: "I have seen reports suggesting yesterday's inflation figures show we are returning to the days of the 70s. They are wrong, both in the nature of the problems we face and also in the scale.

"Inflation must be tackled. We cannot be complacent. But in comparison to the 1970s when it reached over 26 per cent, it remains low. Even in 1991, it was still at 8 per cent.

"And it was home-grown inflation which dogged our economy in the 70s and successive decades. While the inflationary pressures we faced in the past were primarily domestic, today they are global."