Yahoo Finance Bank of England was wrong about furlough's impact on inflation – Bailey
Andrew Bailey, the governor of the Bank of England (BoE), has said that policymakers “were wrong” about the impact of the end of the furlough scheme on inflation.
Speaking at the House of Lords on Tuesday, he said: “In terms of the labour market the real challenge for us was the furlough scheme which was extended from April to September 2021. Right up to the last day there were a million or so jobs on the furlough scheme…”
“And the question for us was what are the consequences going to be of that scheme ending. Are we going to see slack in the labour market because some people aren’t going to have jobs to come to. We thought unemployment would rise, and we were wrong.”
The government’s furlough scheme, which paid 80% of employees' wages for the hours they could not work in the pandemic, was extended from April to September, and up to the last day there were around a million jobs on the programme.
Read more: Interest rates set to rise as pay growth jumps
It comes as Office for National Statistics (ONS) data published earlier on Tuesday revealed that wages grew at their fastest pace on record outside of the pandemic but are still lagging behind inflation.
Average earnings, excluding bonuses, grew at 7.2% over the 12 months – up from the 6.7% recorded in March. This is closer to catching up with inflation than in past months, but still below the pace of price rises. UK inflation was clocked at 8.7% in April.
In real terms, growth in total and regular pay fell on the year in February to April 2023, by 2.0% for total pay and by 1.3% for regular pay.
Giving evidence to the economic affairs committee as part of an inquiry into central bank independence, Bailey said this data showed that the labour market was "very tight".
"As I'm afraid this morning's numbers illustrated, we've got a very tight labour market in this country. We've had a fall in the supply of labour, which is showing signs of recovering, but very slowly, frankly," he said.
Read more: Interest rates: Bank of England policy-maker hints at further rises
The UK consumer prices index stood at 8.7% in April, after being in double digits since August last year.
Inflation started soaring in the summer of 2021, climbing beyond the Bank of England’s 2%.
It comes after Bailey told the British Chamber of Commerce (BCC) annual conference last month that Threadneedle Street had “good reasons” to expect inflation to fall sharply over the coming months.
The Bank of England’s Monetary Policy Committee (MPC) will decide on UK interest rates next on 22 June.
Watch: How does inflation affect interest rates?
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