BOE: Ups Employment Outlook, But Highlights Stagnant Growth Projection

The Bank of England highlights added labour market tightness, resulting in further wage and ultimately inflationary pressures.

• The latest projection for unemployment (market rates) is 5.3% by the end of the forecast period, a substantial 1.1pp downwards revision from November. 
• The MPC now sees NAIRU 'just above 4%' in the long term.
• The stronger labour market outlooks are largely based on reduced supply due to falling participation rates, in part connected to higher levels of long-term illness post-covid.
• The BOE stated that both domestic price and wage pressures have outpaced expectations, implying upside risks to to core CPI. A continuation of this trend would imply an active response in the Bank Rate: "If there were to be evidence of more persistent pressures, then further tightening ... would be required."
• The forthcoming rise in unemployment is anticipated to be a transitory effect of weak productivity, with the BOE anticipating five quarters of negative growth commencing in Q1 2023.
• Growth outlooks were largely seen as more stable in the short term. The UK economy is expected to fall -0.7% in Q1 2024 (vs -1.97% in Nov estimate). 2024 growth is seen contracting to -0.25% (vs -1% in Nov), whilst 2025 outlooks were more muted at +0.25% (vs +0.5% in Nov).