Former senior official hits out at Bank’s forecasts for jobless rate
THE BANK of England’s projections of unemployment are “arbitrary” and “inappropriate” according a stinging analysis by a former member of the bank’s monetary policy committee (MPC).
A paper published today by the National Institute of Economic and Social Research (Niesr), and authored by former MPC economist David Blanchflower and David Bell of the University of Stirling argues that the Bank has is underestimating the amount of spare capacity in the UK’s labour force, since it does not include people who have been unemployed for a long time.
The Bank has suggested that wage growth will rise to around 2.5 per cent by the end of the current year, but Blanchflower and Bell’s theory means it would be significantly longer until the job market is back to full strength.
Weaker wage growth would also mean a longer period before interest rate hikes were appropriate, so the estimates are extremely important for monetary policy.
Oxford Economics also suggest that the MPC will have to cut its estimate of the healthy, equilibrium rate of unemployment in the Bank’s next inflation report, which will be released next week.