Bank of England needs one million missing workers to return


Paying workers more means the Bank of England (pic) may also discover the inflation it needs to quell proves longer lasting.

LONDON: The fallout for the UK economy from one of the worst labour shortages among rich nations is on full display at a Meridian Leisure Hotel in Reading, where managing director Moez Janmohamed likens it to a nightmare.

He is having to close rooms due to the lack of housekeeping staff and to cap numbers on the dinner service “because we can’t find the chefs.”

At the same time, he’s raising wages not just to fill vacancies in his hotel a short drive south of London, but to stop the staff from leaving. Even a 30% increase in the salary of a sous chef to £36,000 (US$47,600 or RM200,935) “doesn’t guarantee you get them,” he said.

“There is an almost cavalier attitude,” he said. “They make multiple applications, sign several contracts and choose the one they want.”

Janmohamed’s experience is a rare moment where workers have the upper hand over pay, something long in the coming and which in time should help support demand and living standards.

But it carries other risks for the broader economy.

A failure to secure staff threatens to limit the speed of the post-lockdown recovery. Paying workers more means the Bank of England (BoE) may also discover the inflation it needs to quell proves longer lasting.

The pain appears to be more acute in Britain than the United States and the eurozone, according to BoE officials, with the impact of Brexit colliding with the pandemic.

Before the emergence of the Omicron variant, the Organisation for Economic Co-operation and Development warned that a persistent shortage of workers in the UK could slow what is forecast to be the fastest growth rate among the Group of Seven major economies.

The threat of wage inflation, meanwhile, helps explains why the BoE is widely expected to raise interest rates before the US Federal Reserve.

Michael Saunders, a BoE policymaker who voted in the minority to hike rates in November, last week rejected the central bank’s official forecast that wage growth would drop from the underlying rate of 4.5% to around 2% next year.

“Rather than a slowdown in underlying average earnings, it seems more likely to me that pay deals will pick up in the coming year, because the labour market is tight,” he said on Friday.

Ben Broadbent, a deputy governor with more dovish views, said Monday the country’s tight labour market was putting “continuing upward pressure on pay.”

For Janmohamed, who is at the sharp end of the labour market squeeze in the hospitality sector, the evidence is clear.

“We are taking defensive measures, giving valuable members of staff pay rises to deter them from leaving before they have asked,” he said.

“It’s not transitory inflation at all. Everything has gone up, from wages to wine to food to energy, and there is only one way out of this: to raise our prices.”

The question for central bankers is will higher wages bring people back to work to fill the record 1.3 million vacancies?

It is key because about half a million workers have vanished since the start of the pandemic and Britain’s official exit from the European Union, which has dried up the flow of labour from the continent. — Bloomberg

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