Speaking at the Adam Smith Business School today Mr Haskel explained that even though much of the current inflation was driven by external factors such as energy prices the Bank would still need to be “vigilant” due to conditions in the labour market. He said: “In my view, if the labour market stays tight, Bank Rate will have to rise.” The job market is described as tight during periods of high demand for workers. Currently the UK has seen unemployment falling further than expected to 4.5 percent whilst vacancies have soared to record levels.
Despite widespread anticipation of an interest rate rise earlier this month the Bank voted to hold rates at 0.1 percent with uncertainties over the labour market being cited as a factor.
Speaking today though Mr Haskel suggested the situation had now changed: “We have at least two additional data points, both of which suggest that the labour market is buoyant.
“First, the Resolution Foundation survey from last week suggests 88 percent of workers who were still furloughed immediately prior to the end of the scheme have been rehired.
“Second, the labour market data for this month shows that indicators of redundancies remain muted, the number of payrolled employees continues to grow beyond 2019 quarter four levels and there has been no recorded rise in claims for unemployment since the scheme ended.”
He also stressed the historic changes in interest rates suggesting any rise would be a return to normal.
He added: “In my view the prospective rise in Bank Rate from its emergency level – when that comes – is not a bug, but a feature.
“It reflects the success of the policies, mostly fiscal, health and science that have supported the economy over the pandemic.”
Inflation is currently predicted by the Bank of England to peak at around five percent next year, it’s already at 4.2 percent.
Further data out today has highlighted the growing costs crippling UK businesses further strengthening expectations for a rate rise.
The Purchasing Managers’ Index found average cost burdens had grown at the fastest level since the index began in 1998.
Chief Business Economist at IHS Markit Chris Williamson said: “A combination of sustained buoyant business growth, further job market gains and record inflationary pressures gives a green light for interest rates to rise in December.”
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