Banks should use restraint in paying bonuses to avoid risk of embedded price rises, the governor of the Bank of England has warned.
Andrew Bailey said wage rises in response to the cost of living crisis would only exacerbate price increases.
Bailey fears the second-order effects of rising wages, as companies are forced to raise prices to accommodate wage increases in a wage-price spiral reminiscent of surging price rises of the 1970s and 1980s.
The governor was addressing MPs after coming under fire from unions this month as he urged workers not to ask for wage increases to combat the cost of living crisis, and he said bank bonuses were not exempt from that assessment.
“It's not just wage setting, it's also price setting... it's both.
"There is very clearly an upside risk there. The upside risk... comes through from the second-round effects.
“My big concern is that the least well off will come off worse in this process if we don’t have some process of thought and restraint.”
Bailey’s comments came on the same day that Barclays PLC (LSE:BARC) increased its bonus pool to £1.9bn, while NatWest Group PLC (LSE:NWG) last week increased its pool to £298mln.
The Bank of England hiked rates to 0.5% in its February Monetary Policy Committee (MPC) meeting, with more expected in March and April to fight price rises.
CPI inflation rose to 5.5% in the 12 months to January, its fastest pace in 30 years, while average UK wages grew 4.3% in December.