Bank of England thinks inflation will come down, but “it is taking much longer than expected,” says Governor Andrew Bailey
Reducing UK inflation is taking ‘much longer than expected’, the governor of the Bank of England admitted yesterday.
Andrew Bailey stressed that the UK labor market was ‘very tight’, with some companies ‘hoarding’ staff to avoid having to recruit new workers from a shrinking pool.
While there are signs that the supply of workers is recovering, Bailey said it was happening “very slowly,” causing wages to rise rapidly and fueling inflation.
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Speaking to the House of Lords’ Economic Affairs Committee, Andrew Bailey stressed that the UK job market was ‘very tight’
“Employers say they find it so hard to recruit workers in this market that they are not going to free up labour, they are hoarding. They will adjust hours if necessary, but will be very reluctant to fire people,” he said.
Mr Bailey added: ‘We still think inflation will come down, but it is taking much longer than expected.’
The governor also revealed that food price inflation, which was at a near record high of 19.1 percent in the year to April, turned out to be more stubborn than expected.
But mr. Bailey said the food retailers had been inaccurate when they told the bank about industry pricing.
More retailers than food producers have told us that inflation will come down.
Then the contact came back later and said, “Sorry, we misunderstood that one,” he said.
Reducing UK inflation is taking “much longer than expected”, the governor of the Bank of England admitted
His comments came after official data showed UK wages rose by 7.2 per cent in the three months to April, their fastest pace ever recorded outside of the Covid-19 pandemic.
This was accompanied by an employment rate that reached a record high of 76 percent, while the unemployment rate fell from 3.9 percent to 3.8 percent.
Danni Hewson, head of financial analysis at investment firm AJ Bell, said: “The fear of finding new skilled workers is holding back many employers from letting staff go.”
She added that with rising food costs and the prospect of “impossible increases in mortgage payments,” many employers viewed wage increases as “the only way to keep valued staff on board.”
But Ms Hewson warned that wage increases helped drive up prices.
“Salaries have helped mitigate rising costs to some extent, but they’ve also helped maintain purchasing power and that’s fueling the very thing that’s causing all the pain in the first place,” she said.