MNI BRIEF: Labour Hoarding Two-Sided Policy Risk - BOE Greene

There is evidence of labour hoarding, firms not laying-off staff in response to softer demand, in the UK and it poses a double-edged policy risk, as rapid unwinding could see unemployment surge and inflation head below target or if it maintained inflation could prove more persistent despite economic weakness, Bank of England MPC member Megan Greene said Thursday.

In a speech at Make UK Greene said the big picture of the UK labour market appeared increasingly benign, with vacancies falling back close to pre-pandemic levels, and that "labour demand and labour supply are finally roughly equal" which should ease upward pressure on wages. She said, however, that "there is indeed some indication of excess labour hoarding in terms of both heads and hours, noting a risk "that firms could suddenly give up labour hoarding if activity failed to recover as anticipated."

Greene, who has so far opposed a rate cut, said that for her "the burden of proof therefore needs to lie in inflation persistence continuing to wane," in other words she needs clearer evidence of fading inflation persistence to back easing.