As part of our quarterly economic insight briefings with the Bank of England, our Deputy Chief Executive Muniya Barua sat down with Lai Wah Co, Deputy Agent for London at the BoE, to discuss what’s on the minds of rate setters in Threadneedle Street.
Interest rates have been on hold for six months. Inflation is coming down, but is still above the Bank’s 2% target, and growth is still really sluggish. Can you take us into the minds of the Monetary Policy Committee – what factors are they considering when they make their decisions?
It’s a challenging and uncertain economic environment at the present time, particularly because of the Middle East conflict and its impact on energy prices, food prices, and supply chains.
So we’re monitoring the situation closely, trying to assess how that’s feeding through. Amongst the nine members of the Monetary Policy Committee, three voted for a rate rise in the latest decision.
They remain a minority for now, but that does point to a recognition that there are some inflation risks we need to be alert to.
Let’s talk about jobs: the London labour market is a bit of a curiosity – unemployment tends to track higher than other parts of the country, and youth unemployment in particular is tracking at around 25% in the capital. What’s going on with the labour market and hiring, and is the Bank seeing any implications of AI at this stage?
The London unemployment rate is typically always a little higher than elsewhere in the economy, because it’s a very dynamic local labour market – people are coming and going all the time.
But because the economy has been very weak for some time companies aren’t hiring, and the easiest way to control that is to not take on new trainees and graduates – they don’t have the experience. So when the labour market is looser, as it is now, if companies are taking on staff, they can hire experienced people.
The impact of AI is very variable by sector and by firm, depending on how well they’re using it. We do hear of some instances – in some professional services firms – where it is having a slight impact on their most junior staff. But it’s early days, and this is something we’ll be monitoring over the years to come.
We’re heading into the holiday season – give us some reasons to be cheerful. What are the bright spots in the economy, and what should firms be preparing for when they come back in September?
Given the size of the shocks the UK economy is currently experiencing, we are reassured that there is a degree of resilience in the economy – particularly because firms have already survived a number of shocks in recent times.
They’ve learned how to weather that and ride out the roller coaster.
But we’re certainly not out of the woods in terms of the risks, so companies really have to be alert to the economic environment and respond accordingly, in an agile and quick way if they need to, to ensure they can ride out economic challenges.
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