THE Bank of England has warned that significant pay increases in the public and private sectors, to compensate for higher energy prices, could lead to spiralling rates of inflation.
The bank's governor Mervyn King said that large pay rises in the forthcming wage round could drag inflation away from its target of two per cent.
His comments were a veiled warning that such a move could lead to a hike in interest rates.
They followed a tough message from Chancellor Gordon Brown on Thursday that public sector pay increases must not go above two per cent on the back of higher inflation and energy costs.
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