The Bank of England warned that Britain’s workforce would be permanently smaller following the pandemic. This will lead to stagnation.
Officials from banks questioned the Government’s ability to drive hundreds of thousands more people back to work. They highlighted evidence of “increasing disconnect” among those who have quit their jobs or given up on looking for work since 2020.
The Bank stated that the Bank had already seen a decline in Britons working as a result of the Baby Boomers retiring earlier.
Many early retirees are now “unlikely” to return to the job market in the near future because they don’t want to work.
Jeremy Hunt, the Chancellor, is under immense pressure to do more in the Budget to encourage work. The current tax burden for Britons is the highest in 70 years.
These factors, according to the Bank, would cause a decline in the UK’s long-term economic performance. The Bank also sharply downgraded the Bank’s views on UK potential supply growth, which is what determines how much an economy can grow before it starts overheating – from a pre-crisis average higher than 2.5pc.
Chief executive of Resolution Foundation Torsten Bell stated that the outlook places Britain on a path of “perma-stagnation”, and at risk of a “long, and deeper, living standard downturn”.
The Bank, however, raised its near-term growth projections and stated that the UK had avoided entering recession by the end of the last year.
The policymakers increased interest rates from 3.5pc up to 4pc, signalling that they were approaching a peak.
Thursday’s rate increase will add almost £50 per month on average tracker mortgage payments.
The Bank also stated that an estimated 1.7 Million mortgages will end their fixed-rate term in 2023. These households face an average monthly increase of £250 after their current deal ends.
According to Moneyfacts, higher interest rates will boost savings, but the average instant access account pays only 1.73pc.
Andrew Bailey, Bank’s Governor, stated that it was too early to declare victory over inflation after ten rate increases. However, falling energy costs could help lower inflation dramatically over the next year, from the current rate of 10.5pc down to 4pc by 2023. This would achieve the goal of Prime Minister Rishi Sonak to reduce inflation by half this year.
The economy is expected to grow by 0.1 per cent in the last three months of 2022. This compares with a prediction of a slight decline.
Since the outbreak of the pandemic, more than half a million people have quit the workforce. According to Mr Bailey, although official statistics suggest that many of these people did not seek work due to ill health, the decision to retire early played an even greater role.
He stated that it was too early to assess the long-term economic impact of this situation. However, he said that nursing these people to full health would not encourage them to return to work. The last of the Baby Boomers are due to retire in the next decade.
He stated that “the population is ageing” and said so despite Covid.
According to the Bank’s Monetary Policy Report, shifts from the pandemic are expected to continue to impact the economy for three years. The Bank stated that “Covid” and related delays in the treatment of other conditions were likely to have played an important role, adding that fewer people had returned than they anticipated.
“This could indicate that the decline in participation persists for longer than previously thought,” the report said. “Likely, people are not returning to the labour market because of cost of living concerns,” it stated.
MPs stated that they believed the government could make more of Britain work again. Sir Iain Duncan Smith, former Tory leader, stated: “I don’t believe the Bank understands the labour market.
People aren’t returning because there’s not enough incentive to return. The Government takes so much tax and businesses are subject to too much regulation.
“High inflation, high-interest rates and tight regulation are causing great harm to the British public.” To make Britain more competitive, we need to loosen regulations.
The Bank sees Britain in a much less severe recession than that of the 1990s. Britain will experience five consecutive quarters with falling output, which will result in an economy that is 1pc smaller over the next year. Officials stated that the Government’s Energy Price Cap would “limit the squeeze on household spending.”
Companies are more likely than ever to retain workers due to staff shortages. Around 400,000 people are now expected to lose their jobs in the downturn.
The Bank forecasted that bosses would likely “reduce hours or shifts before actively reducing headcount”. According to the Bank, the Bank also predicted that average annual pay increases would be around 6pc due to tight labour markets.
Officials from the Bank stated that any further rate hikes would depend on how many people continue to demand large pay increases and how this impacted price increases. If there were “more persistent pressures”, they said that further tightening will be necessary.
Tory MPs also asked Mr Hunt to not raise the age of state pension to encourage more people to work. Many were becoming increasingly concerned that they wouldn’t receive it.
The Telegraph reported that The Chancellor was contemplating bringing forward the year in which the state pension rises to 68 between 2039 and the middle of the 2030s.
On Monday night, Nigel Mills, Conservative MP, stated that it was right that life expectancy should increase. However, the “data doesn’t currently show, unfortunately, that life expectancy is increasing”.
Natalie Elphicke is the Tory MP from Dover. She said that the statutory pension was like a Scottish mountain for someone of her age.
It is an optical illusion. As we get closer, it seems like there is still a little more to go. My pension age was 60 when I began my work life.
“When the pension age was raised in 2010, I was almost two-thirds through my expected working years. At current rates, a woman my age will lose the equivalent of £59,000 to £77,000.
She said that, if the pension age was to be increased, then the law needed to be changed as age discrimination is just like any other form of discrimination.
