The governor of the Bank of England, which raised interest rates to a 15-year high, said the UK labor market, not Brexit, was the cause of high inflation.
Andrew Bailey says the job market is tight – with near-record unemployment, more than a million vacancies and 7.2% wage growth – is the reason why the inflation rate in the UK is higher than that of the US and the Eurozone.
While The US has brought inflation down to 4%and the 20 countries that use the euro have recorded a price growth rate of 6.1% Earlier this month, the UK struggled with consistently higher levels.
The latest official figures show the consumer price index measure of inflation defying expectations and remained at 8.7%.
But it is not because of Brexit, Mr. Bailey told the European Central Bank (ECB) forum about the central bank on Wednesday.
Instead, he points to the number of people who have left the workforce after COVID-19 and are classified as economic inactivity – neither search nor in work.
“Honestly, I think it’s largely down to the response to COVID. We’ve seen people leave the workforce during COVID, other countries tend to see that reverse faster,” he said. and stronger than we have seen in England.”
only one record number belong to According to data from the Office for National Statistics, people were out of the workforce because they had a long-term illness last year.
Mr. Bailey said: “We’re seeing some reversal on that right now but we’re not back to pre-COVID. That makes our position in the labor market very strong. tight”.
A shrinking workforce has resulted in competition for employees and higher wages.
Mr. Bailey said he has been told by businesses across the country that many employers are retaining and planning to keep staff in the event of a downturn.
Rising inflation means consumers face higher prices, on everything from fuel to food.
On the possibility of further rate hikes, amid some market expectations this week that the prime rate set by the Bank of England could hit 6.25%, Mr Bailey said: “Well, we shall see.”
He added: “We cannot make promises on future interest rates but based on our current position, we think bank rates will have to rise less than current valuations in financial markets. .”
The bank has raised interest rates in an attempt to reduce inflation.
The ECB event was attended by the heads of the US and UK central banks. Both Mr Bailey and ECB president Christine Lagarde said they discussed interest rate decisions.
“We talk a lot and I think that’s important,” Mr Bailey said. “That’s especially important right now because of the global shocks… we see each other quite a bit.”
Role of artificial Intelligence at the Bank of England was also raised with Mr Bailey, who said the organization was looking at how AI would affect the economy and how it could be used in its analysis and operations.
The bank is spending “quite a lot of time” on the potential of AI, he said.
“We’re looking at it with very open eyes,” he added. “You can see its current strengths and weaknesses and of course it’s evolving very quickly.”