A surge in public sector hiring is helping contribute to labour market shortages in the UK, according to Bank of England governor Andrew Bailey.
Bailey said the public sector has grown so much that it created as many jobs as were lost during the pandemic.
“Public-sector employment has increased – we reckon it’s about 200,000 to 300,000” he told the Sunday Times.
“The shortfall in employment in consumer-facing services industries, which are looking for active labour, is not far off the same number … So if you think about competition in the labour market, the public sector has increased.”
Official Bank of England figures show there are more than 250,000 public sector workers now than there was two years ago, with Bailey pointing to Covid as a likely driver of public sector growth.
He said this was underpinned by the NHS Test and Trace programme and the vaccine rollout.
The UK’s unemployment rate is currently at 4.5 per cent, which is far lower than many predicted it would be as the UK came out of the pandemic.
However, the UK has also been hit with labour shortages in lorry drivers and meat processors that have disrupted supply chains thanks in part to an exodus of immigrants during Covid-19.
Bailey’s comments come after the Bank of England decided against increasing interest rates from its historic 0.1 per cent low.
Markets had priced in an expected increase, after several BoE figures indicated that interest rates will likely have to go up to curb above expected inflation.
Bailey said he was “puzzled” by the angry reaction of many when rates remained unchanged at the Bank’s monetary police committee meeting.
“Look at ten-year government bond yields over the summer — there was not much reaction going on So as we saw the inflationary pressures growing, from the point of view of guidance on the framework of policy, I felt that I had to,” he said.
“But it was a conditional statement. Let’s be clear — if we see, particularly in terms of medium-term inflation expectations, that’s increasing, we’ll have to act. There’s no question. But to be clear, at no point did I, or anybody, say ‘by the way, we’re going to raise interest rates in November’. ”