“We are all worse off,” says BoE chief economist

British businesses and households must accept that high energy prices and inflation will make them worse, the Bank of England’s chief economist said on Tuesday, in a bid to prevent a wage-price spiral.

Huw Pill said on a Columbia University podcast that high inflation would persist if businesses were unwilling to take a hit to their profit margins and employees resist declining purchasing power.

“Somehow, in the UK, someone needs to accept that they are worse off and stop trying to maintain their real purchasing power by raising prices. [or] wages or pass energy costs on to customers,” Pill said.

“You don’t have to be a great economist to realize that if what you’re buying has gone up relative to what you’re selling, you’re going to be worse off,” he added, referring to the impact of rising energy prices in the UK as a large net importer of natural gas.

Pill added that interest rate hikes in the US and UK over the past year were designed to chill purchasing power and the ability of businesses and individuals to pass on the pain of inflation to others. The BoE rate increase to its current level of 4.25 percent in March

But the chief economist said inflation would stay high if businesses and households refused to accept that they were poorer than before and instead played “pass the package” with price increases.

“What we are dealing with now is the reluctance to accept that, yes, we are all worse off,” he said.

In a similar message, Ben Broadbent, deputy governor of the BoE, said tuesday there was no “dodging the impact on actual revenue from. . . sharp increases in import prices”, which he said “led to second-round effects on domestic wages and prices”.

Pill did not say whether he believed the BoE’s interest rate hikes to date were sufficient to prevent such inflationary spirals or indicated whether he thought further interest rate hikes were needed.

The BoE’s chief economist has already saying the responsibility of monetary policy is to ensure that it will “get the job done” to reduce inflation to the bank’s 2 percent target.