UK is ‘only rich nation’ struggling for workers
A surge in early retirement and long-term sickness has left Britain facing a unique “labour force shock” among rich nations, Andrew Bailey, the Governor of the Bank of England, has said. The UK is the only industrialised economy to have suffered a sharp fall in its workforce since the pandemic, he told MPS. He blamed price rises on fewer workers, supply bottlenecks and the Ukraine war. NHS waiting lists have left 2.5million people unable to work because of long-term illness.
‘The United Kingdom is the only OECD country showing this pattern of labour force shock’
A SURGE in early retirement and long-term sickness has left Britain facing a unique “labour force shock” among rich nations, Andrew Bailey has warned.
The Governor of the Bank of England told MPS the UK is the only industrialised economy to have suffered a sharp fall in the size of its workforce since the pandemic. The shrinking labour force is one of three drivers behind surging inflation, Mr Bailey said. Data showed price rises climbed to a 41-year high of 11.1pc in October. He blamed the price rises on a shrinking workforce, supply chain bottlenecks and Russia’s war in Ukraine. Unlike the later two factors, Britain stands alone among developed nations when it comes to a shrinking workforce.
“The UK is the only OECD country showing this pattern of labour force shock,” Mr Bailey told MPS on the Treasury select committee.
Growing NHS waiting lists have left a record 2.5m people unable to work because of long-term illness. This is up from 2m in 2019, with an extra 133,000 people falling out of the workforce as a result of long-term sickness in the three months to September alone.
Jeremy Hunt, the Chancellor, is poised to announce plans to tackle the long-term sickness epidemic in today’s Autumn Statement, amid fears a failure to deal with it could do lasting damage to the economy. Analysis by Jonathan Haskel, a Bank official, showed OECD countries generally saw more people enter the jobs market between 2019 and 2022.
The jump in October’s inflation rate was driven by sharply higher energy bills and a leap in food prices, leaving the UK with one of the highest rates of growth in the G7 club of rich nations. Only Italian and German inflation rates are currently higher.
Surging prices have forced the Bank of England to raise interest rates to the highest since 2008 in an attempt to slow the economy and curb inflation.
Mr Bailey said a slowdown in the housing market had already begun, with a possible two-year recession and hit to incomes likely to drag down prices further. “If we look at quite a lot of housing market indicators, I think they are all now showing a weakening of both the activity and the price numbers,” he said.
The buy-to-let property market has contracted more than expected, Mr Bailey said, because of the “complicated” tax system, which meant many landlords “don’t want to be bothered” with owning a property portfolio any more.
The Governor said other factors that led to a slowdown included Brexit. His MPC colleague Swati Dhingra cited a study by the London School of Economics that showed a 6pc extra “Brexit effect” in the price of UK food compared with the rest of the world. Mr Bailey warned the recent financial market turmoil triggered by pension funds using liabilitydriven investments showed regulators needed to be more vigilant about risks “blow[ing] up in the non-banking world”. The collapse of cryptocurrency exchange FTX also showed the potential for “systemic” risks stemming from cryptocurrencies, he said.
Mr Bailey said: “Our view generally is that [crypto] is not currently large enough to be systemic, but it has the potential to be so”, adding that regulators were doing “a lot of work” at a global level to ensure any future turbulence in the market does not trigger a financial crisis.