Mervyn King defends the squeeze on UK take-home pay

Mervyn King has said that the squeeze on UK take-home pay is necessary.

Speaking in Newcastle, the Bank of England governor said the current high inflation rate was necessary as the UK economy adjusts to higher commodity prices and becomes more competitive.

"Higher import and energy prices and taxes, have squeezed real take-home pay by around 12%," he said.

"Given the rise in VAT and other price rises this year, real wages are likely to fall again.

"As a result, in 2011, real wages are likely to be no higher than they were in 2005," he added.