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Pill: Would Expect NAIRU To Be Somewhat Higher Vs Pre-Pandemic

BOE
First question for BoE's Pill: If we focus on the unemployment gap, is it necessary for the unemployment rate to get back to NAIRU? And where is NAIRU relative to pre-pandemic?
  • A: This question identifies a key issue of debate. As apparent from MPC voting patterns, there are different views as to whether unemployment needs to rise to reassure we won't get inflation to continue to run above target levels.
  • Others think the surge in wage growth at end of furlough is related to job churn rising - and that rise in job churn was associated with high vacancies and wage growth picking up.
  • In the spectrum between these two, Pill sys he would put himself closer to the latter.
  • The NAIRU is more uncertain due to questions over participation. Will people re-enter or stay outside the labour market?
  • Would overall expect NAIRU to be somewhat higher. Have seen a terms of trade shock which will have a persistent impact on the NAIRU as the UK is a big importer of energy which squeezes national incomes.
  • Would expect NAIRU to be higher than pre-pandemic. Traditional measures of unemployment gap might not be the best way of measuring this.
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