Mervyn King, the Bank of England governor has said that the squeeze on UK take-home pay is necessary. Speaking in Newcastle, he said the current high inflation rate was unavoidable as the UK economy adjusts to higher commodity prices and becomes more competitive.
He said inflation was likely to rise further to 4-5% in the coming months, before falling back sharply from 2012.
He went on to say that UK wages were stagnant, and - coupled with high inflation - this had led to the longest decline in the real value of take-home pay in the UK since the 1920s. Mr King claimed that hard times for UK wage-earners were, one way or another, inevitable.
He also added that spending in the UK will continue to face "headwinds", as the pay squeeze is set to continue, households and banks are still struggling with their debts, and government austerity is on the way.
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