LONDON (Reuters) -Bank of England Governor Andrew Bailey said on Tuesday that official data published earlier in the day showed the labour market was “very tight”, and added that inflation had been slower to fall than the central bank had hoped.
Economists expect the BoE to raise its main interest rate to 4.75% from 4.5% next week, and after the latest jobs data markets now see a 50% chance that BoE rates will peak at 6% early next year, up from the peak of 5.5% expected on Monday.
“As I’m afraid this morning’s numbers illustrated, we’ve got a very tight labour market in this country,” Bailey told lawmakers on the House of Lords Economics Affairs committee.
“We’ve had a fall in the supply of labour, which is showing signs of recovering, but very slowly, frankly,” Bailey said.
Basic wages in the three months to April were 7.2% higher than a year earlier – the biggest increase on record, apart from periods during the COVID-19 pandemic when data was distorted.
The BoE is closely watching pay growth for signs of how persistent inflation is likely to be. Britain had the joint-highest inflation among big rich economies in April at 8.7%.
“We still think the rate of inflation is going to come down, but it’s taking a lot longer than expected,” Bailey said.
Last month the BoE forecast inflation would drop to around 5% by the end of this year and be below its 2% target in early 2025.
Bailey said British food price inflation had been slower to drop than global commodity prices, despite past reassurances from the Bank’s contacts in the retail industry that prices would fall.
On food prices he said: “We’ve been told for some time, you know, they’ve reached their peak, they’re going to come down, the rate of inflation is going to come down. And then the contacts come back and say ‘Sorry, we got that one wrong.'”
(Reporting by David Milliken and Andy Bruce; editing by William James)
