11/24/22, 8:51 PM Exodus from jobs mar­ket ‘could push up interest rates’

Exodus from jobs mar­ket ‘could push up interest

rates’

The Guardian · 24 Nov 2022 · 43 · Richard Part­ing­ton Eco­nom­ics cor­res­pond­ent

The surge in people quit­ting the Brit­ish work­force because of ill­health or early
retire­ment could force the Bank of Eng­land to fur­ther increase interest rates,
its chief eco­nom­ist has warned.

Huw Pill said the depar­ture of more than half a mil­lion work­ers from the jobs
mar­ket since the Covid pan­demic risked stok­ing infla­tion, long after the shock
from sky-high energy prices is likely to fade.
In a speech to busi­ness lead­ers in Lon­don, he sug­ges­ted the rise in eco­nomic
inactiv­ity – when work­ing-age adults are not in a job or look­ing for one –
could force a response from Thread­needle Street.
“Rising inactiv­ity among the work­ing-age pop­u­la­tion rep­res­ents an adverse
sup­ply shock, which adds to the dif­fi­cult shorter-term tradeoffs facing mon­et­-
ary policy,” he said.
Pill said the work­force exodus could add to pres­sure on employ­ers to offer
higher wages, amid near record job vacan­cies and the low­est levels of unem­-
ploy­ment since the 1970s. This, in turn, could stoke infla­tion if firms pushed
up their prices to accom­mod­ate higher wage bills. “The labour mar­ket has
con­tin­ued to tighten and has proved tighter than we had expec­ted, largely

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11/24/22, 8:51 PM Exodus from jobs mar­ket ‘could push up interest rates’

owing to the adverse devel­op­ments in par­ti­cip­a­tion that we did not fully fore­-
see,” he said.
The UK is lag­ging behind other advanced eco­nom­ies, with employ­ment still
below levels seen before the Covid pan­demic.
Offi­cial fig­ures show the num­ber of people clas­si­fied as eco­nom­ic­ally inact­ive
has increased by almost 630,000, driven by record levels of long-term sick­ness
and growth in early retire­ment.
Eco­nom­ists, includ­ing Pill’s pre­de­cessor, Andy Haldane, have warned Bri­tain’s
“miss­ing” work­force is con­trib­ut­ing to a weaker post-pan­demic recov­ery than
other nations, while ques­tion­ing whether NHS back­logs and years of under­in­-
vest­ment in the health ser­vice could be play­ing a role.
Des­pite sound­ing the alarm over per­sist­ently high infla­tion, Pill said there
were some signs the labour mar­ket was begin­ning to “turn” as the eco­nomy
slid into reces­sion, includ­ing a sta­bil­isa­tion of jobs vacan­cies from his­tor­ic­ally
high levels. “That will weigh against domestic infla­tion­ary pres­sure,” he said.
He also said rates were unlikely to need to rise to levels priced in by fin­an­cial
mar­kets ahead of the cent­ral bank’s last decision on bor­row­ing costs – which
had implied rates peak­ing at about 5.25% late next year.

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