Labour squeeze to fuel inflation and clamp down on economy

The ongoing labour squeeze plaguing the UK economy will trigger a surge in prices.

That’s the warning from one of the Bank of England’s rate setters, who warned today that stronger inflation is the inevitable outcome of severe supply and demand imbalances.

Responding to a grilling by MPs, Ben Broadbent, a deputy governor at the Old Lady, said the “only response ultimately” to intense upward wage pressure is “prices will go up”.

The warning comes after the Bank decided to leave interest rates unchanged at a record low 0.1 per cent last week despite expecting inflation to scale to five per cent by April next year.

The government’s fiscal watchdog, the Office for Budget Responsibility, thinks it could breach the Bank’s estimate and climb above five per cent.

The Office for National Statistics currently estimates inflation is 3.1 per cent, already above the Bank’s target.

Swelling costs could “reduce the size” of some sectors of the economy due to firms pulling production, Broadbent said.