(Bloomberg) — Bank of England Deputy Governor Ben Broadbent warned there are now “clear signs” that interest rate rises are dragging on the UK economy and causing unemployment to pick up.
(Bloomberg) — Bank of England Deputy Governor Ben Broadbent warned there are now “clear signs” that interest rate rises are dragging on the UK economy and causing unemployment to pick up.
He said that economic indicators sensitive to higher interest rates, including spending on consumer durable goods and housing investment, have “weakened quite a lot.”
“There are now reasonably clear signs that monetary policy tightening is having some effect, not least in the shape of demand in the UK,” he said Thursday at the European Central Bank conference on monetary policy. “Even in aggregate, we’ve seen weaker demand growth and the beginnings at least of some rise in unemployment.”
His comments came after the BOE halted its most aggressive tightening cycle in over three decades last month after seeing signs of the economy beginning to weaken.
Broadbent was one of five rate-setters in the majority of the divided Monetary Policy Committee to back leaving rates at 5.25% even though inflation remains triple the BOE’s target and wages are rising rapidly. He expects inflation to fall back to the BOE’s 2% target within two years and says rate rises so far are beginning to bite.
Broadbent said the jobs market has been a “puzzle” to rate-setters in recent years but highlighted signs of it loosening, including the sharp decline in vacancies.
He warned that the jobs market could “weaken quite suddenly” if firms who have hoarded labor decide that demand has not recovered enough to hold onto staff.
Unemployment in the UK has been resilient at ultra-low levels despite the economy enjoying only sluggish growth. Labor hoarding due to the struggle to recruit staff following the pandemic has been blamed for keeping the labor market tight, keeping upward pressure on wages and inflation.
However, the jobless rate has started to pick up as recession worries mount, jumping to 4.3% in the three months through July. While wages are still rising at a record pace, the BOE said at its September meeting that this was “difficult to reconcile” with other indicators.
BOE Governor Andrew Bailey also suggested on Wednesday that the record surge in pay could be a “lagging indicator.”
“People can say, ‘I can see inflation coming down,’ and that starts to bring wage increases down — but we have to see that happen,” he said.
(Updates with comments from the appearance.)
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