Bank says early retirement fuelling rate rises -
UK Economy

Bank says early retirement fuelling rate rises

Senior officials from the Bank of England have recently warned that it will implement further rate hikes to bring inflation under control. In its latest warning, the central bank stated that a surge in early retirement would fuel further rate increases.

According to the central bank’s Chief Economist, Huw Pill, there are now around 600,000 fewer people in the British workforce than the BoE had expected. This means increased pressure on employers to increase pay for staff even though the nation is on course for a long and deep recession.

An increase in economically inactive people

Concerns over the shortage of workers have been further compounded by an analysis carried out by the Institute for Fiscal Studies in June. This showed that the number of older so-called ‘economically inactive’ people – those not in paid work and not looking for paid work – had increased since the start of the pandemic. According to the data, the figure had risen by more than 250,000 for those in their 50s and 60s compared to pre-pandemic data.

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A shock to the economy

Pill described the situation as a shock to the economy and said that the central bank still had much to do regarding interest rates.

At a recent conference hosted by UBS, he said: “That is a real shock to the economy, that is not something that monetary policy can prevent. It needs to manage the consequences of that. Given that tightness in the labour market, the concern about self-sustaining dynamics emerging in wage and price setting all implies we still have more to do.”

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Since last December, a series of rate hikes have taken the base rate from historic lows of 0.1% to 3% within a year. Further rate hikes will put mounting pressure on households with people already struggling to make ends meet financially amid soaring food and energy prices and rocketing inflation.

Last week, the central bank hiked the base rate by a bumper 0.75% which took it from 2.25% to 3%. Many will now be worried that the warnings from the Chief Economist could mean more supersized hikes are on the way, which could lead to some people being tipped over the financial edge.

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Pill also warned that the central bank would have to take more aggressive action in relation to monetary policy tightening as a result of inflation soaring to its highest level in four decades. September saw inflation rise to 10.1% due to rocketing food prices, and it is expected to have increased again in October.

The Bank of England has also warned that Britain is on course for the longest and deepest recession since the 1920s when reliable records started.