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People in the UK feel “frustrated and squeezed” because their pay has flatlined for a decade, the Bank of England’s chief economist has said.Andy Haldane told BBC Newsnight that businesses had not invested enough to give the productivity improvements necessary to push up pay.Low pay had contributed to low interest rates, which will remain relatively low for “a pretty long time”, he added.Earlier he told BBC Wales the Bank needed to look at raising rates.”We’ve gone through, for most people, a pretty extraordinary, almost unprecedented period of real take home pay having flatlined for the better part of a decade, and that is well beyond anyone’s historical experience.”And understandably people are feeling frustrated and squeezed by that squeeze on their purchasing power in the shops,” Mr Haldane said.UK inflation rate at highest since 2013Spending squeeze to worsen, warns BankFarewell to pay growthHe said productivity – how efficient workers and firms are – was also flatlining, and this was one of the biggest contributing causes to lack of pay growth.Only between 1% and 5% of firms were “high-innovation” businesses who had embraced “the rise of the robot” and are “taking the productivity high road,” he said.”The root cause of the stagnation in productivity and pay is that long lower tail of firms. They’re taking the low-productivity road.”Businesses need to benchmark themselves against other firms to see whether they are performing above average, he said.Pay growth has been falling rather than rising over the past year, which has taken the Bank and the rest of the world “somewhat by surprise” given buoyant UK jobs growth and falling unemployment.Nevertheless, lack of pay growth is “a factor that has contributed to rates in the UK remaining at their currently very low levels”.
He said the Bank is “watching closely for any signs of pay picking up. That’s one of the key indicators we look at when judging the stats.”Over the past 300 years, average interest rates has been about 5%, compared with the current record low interest rates of 0.25%.Mr Haldane said: “Rates currently, and if you believe financial markets, prospectively, are set to remain pretty low for a pretty long time. I mean not just the lowest in the last 300 years, possibly the lowest in the last several thousand years, I would say.”He added that for people planning getting long-term loans such as mortgages, any future rate rises would be “gradual and to a limited extent”.”By which we mean the numbers that may have been in people’s heads from the past are probably on the high side relative to what we might expect in the future. Let me not put a number on that. But limited and gradual is the name of the game.”Interest rates have been held at a record low since last year.But at its last rate rise meetings, three of the eight members of the Bank’s Monetary Policy Committee surprisingly voted to raise interest rates, jolting financial markets.Mr Haldane has also said he expects to vote for rate rise this year.Earlier he told BBC Wales that the Bank “need to look seriously at the possibility of raising interest rates to keep the lid on those cost of living increases.”