BoE Governor Andrew Bailey warned at Jackson Hole on Saturday that the UK faces an “acute challenge” of weak underlying growth compounded by reduced Labor force participation. He stressed that with ageing demographics unlikely to reverse, raising productivity growth must become a priority to offset the economy’s structural drag.
Bailey said the BoE has shifted its focus from long-term unemployment trends to participation rates, noting that the proportion of working-age Britons active in the Labor market remains lower than before the pandemic, unlike in most advanced economies. While he cautioned that survey data contains caveats, he argued they do not fully explain the shortfall.
Calling it a “pretty sad story for the UK,” Bailey said diminished participation leaves the UK at the bottom of global rankings. This structural weakness is also feeding into inflation concerns, with some policymakers fearing that limited Labor supply is one reason why UK inflation, at 3.8% in July, remains the highest in the G7.
