MNI INSIGHT: BOE Labour Market Stock Take Not Ready Until Feb

The Bank of England’s stock take of supply side capacity, key to assessing the state of the labour market as it weighs whether to further tighten monetary policy, is only set for completion in time for the February forecast round, MNI understands.

While BOE Governor Andrew Bailey said at the August press conference that the review would be ready by November, this week’s meeting will now have to base its considerations on the flawed Labour Force Survey, with the stock take’s questions over a possible rise in the unemployment level compatible with stable inflation or a fall in potential growth still unanswered. (See MNI INTERVIEW: Some Positives In Cloudy UK Labour Data)

The BOE’s Monetary Policy Committee is widely expected to leave its policy rate on hold at 5.25% on Thursday, but the decision will be close with the state of the UK’s supply side a key concern for both hawkish and dovish members as they deliberate over whether to tighten further.

DIVISIONS ON THE MPC

While two members, Jonathan Haskel and Catherine Mann, are likely to vote for a rate increase, with Haskel arguing recently that “embedded inflation” would be the worst outcome for the economy, their colleague Swathi Dhingra has expressed fears over doing permanent damage to supply capacity by hiking too much, putting the UK on the path to stagflation. A thorough assessment of the dangers to the supply side would draw heavily on the stock take by the BOE’s economists, particularly now that Office for National Statistics has acknowledged that its LFS has low response rates and sampling problems, leaving it prone to short-term volatility.

In contrast to the policy preferences expressed by Haskel, Mann and Dhingra, others on the nine-member MPC appear to have no clear bias, leaving this week’s decision finely balanced.