U.K. Job Market May Be ‘Alarmingly Tight,’ Budget Official Says
(Bloomberg) -- The U.K labor market may be “alarmingly tight” and could stoke wage pressures, Office for Budget Responsibility member Charlie Bean told lawmakers.
In testimony to the House of Commons Treasury Committee, Bean said the Bank of England would have little choice but to raise interest rates if the end of the furlough scheme does not bring more workers into the jobs market.
Bean is a former deputy governor and chief economist of the U.K. central bank. The BOE will release its verdict on the labor market on Thursday, when it announces its interest-rate decision. Traders are expecting an increase from 0.1% to 0.25%, the first rise by a Group of Seven nation.
With vacancies running at a record high, a shortfall of workers will drive up pay. The OBR, the government’s fiscal watchdog, estimates there were around 200,000 people on furlough who are now looking for jobs, following the end of the wage-subsidy program on Oct. 1.
“We need some of those workers on furlough to be looking for jobs to fill those vacancies,” Bean said. “If that doesn’t happen, the labor market is looking ... alarmingly tight might be overstating it a bit, but in a world where you haven’t got many workers looking for jobs and vacancies at a very high levels, that is the sort of thing where the central bank starts thinking this going to stoke wage pressures.”
The OBR also assumes that some of the workers who went into inactivity now start coming back, and that some migrants who left the country begin to return. Unless labor shortages ease, Bean warned, the cost of servicing the national debt could rise by 30 billion pounds ($41 billion) a year if inflation peaked at 5.4% and interest rates hit 3.5%.
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