The governor of the Bank of England, Andrew Bailey, has signalled he is pessimistic about the current worker shortages crippling the UK economy ending soon.
Giving evidence to the Treasury Committee, Bailey said the main problem in the economy is now “getting jobs filled.”
Responding to questions on whether inflation will persist for longer than the Bank expects, Bailey said he has deep “concern[s] about the persistence in the labour market story.”
Bailey also revealed there was a 4-4 tie among members of the monetary policy committee over whether the Old Lady’s previous forward guidance for tightening monetary policy had been met at the previous round of meetings.
Bailey revealed he personally thought the old forward guidance on tightening had been met.
The MPC voted to maintain the pace of bond purchases to ensure the stock of the Bank’s assets swell to £895bn and keep rates unchanged at 0.1 per cent in their previous meeting in August.
The MPC is scheduled to publish the results of its next round on meetings on 23 September, the first to include new chief economist, Huw Pill.
Other members of the Bank’s ratesetting committee, appearing at the session, also voiced their concerns over worker shortages clearing.
Dave Ramsden, deputy governor, said he does see inflationary pressures on the margin, driven by wage pressures in the labour market.
The Bank thinks inflation will reach at least four per cent by the end of the year. The Office for National Statistics currently estimates CPI inflation is running at two per cent annually, a substantial drop from 2.5 per cent from its previous estimate.
Over the course of the pandemic, the Bank has routinely undershot its inflation forecasts. In its previous monetary policy report, published in May, it expected inflation to reach 1.7 per cent annually in June, a 0.8 percentage point undershoot.
Silvana Tenreyro, an external member of the MPC, and Ben Broadbent, deputy governor, both reiterate these concerns about the fragility of the labour market.
Latest data shows candidate supply levels are falling at their fastest pace on record. The Confederation of British Industry estimates worker shortages will persist for at least another two years without government intervention.
Supply and demand imbalances to blame for price spikes
Bailey explained the primary driver for recent price spikes has been sharp increases in demand for goods “affecting global trade and causing supply bottlenecks.”
“With the persistence of covid we haven’t seen the rebalancing of demand between goods and services that we expected to see. There is much stronger demand for goods relative to the supply of goods,” Bailey said.
He urged that inflation will prove transitory as a result of commodity price rises tempering in the coming months and supply chains “sort[ing] themselves out.”
However, Bailey said the UK’s economic recovery from the Covid crisis was starting to flatline.
“I think we are seeing some flattening out of the rate of recovery across a broad range of indicators.”