Former BOE official says UK economy is far from full employment

Author: Justin Low | Category: News

David Blanchflower's view is at odds with current BOE officials

Blanchflower was on the central bank's interest rate panel from 2006 to 2009 and he says that UK unemployment rate may have to drop to 3% before wage growth sees any serious traction.

He argues that a weaker bargaining power has seen employees "frightened" to ask for a higher pay and also flags low productivity as a reason for sluggish wages growth.

In his research report, Blanchflower also notes that underemployment is more important than unemployment in explaining the weakness of wage growth in the UK. He currently puts the underemployment rate at 4.9%.

BOE officials have been more positive with their views on the unemployment rate though, arguing that the jobless rate needed to spur wage growth sits somewhere around 4.25%.

To put Blanchflower's thoughts into context, the UK has never seen an unemployment rate of 3% in the last fifty years, almost. The unemployment rate currently sits at 4.3%, the lowest since 1975 already.

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