Three Key Conversation Starters from the May Inflation Report

After the Bank of England’s inflation report this morning, I think these are the three conversations our industry needs to be having.

  1. Wages have gone up 2% on average since the recession – which is a small rise when compared to the number of people going back in to work. Labour supply has dramatically increased and between the rises in population, hours worked and participation from older workers, the end result is the equivalent of 640000 new workers. Is this putting pressure on wages? Is the main reason wages haven’t risen more that companies are having to pay a greater number of people?
  2. Despite this increase in labour supply and, resultantly, total hours worked, productivity is down. With the skills shortage stretching on and today’s report showing a lack of inward investment where should employers be spending money? Could productivity be improved with employers spending more on technology and training or leveraging the skills and market knowledge of recruitment professionals? The recruitment industry is reporting a post-recession record number of permanent hires giving us the confidence that firms are investing in long-term staffing – but they’re finding it difficult to get people with the necessary skills. Should they be using interim solutions to bridge the gap?
  3. UK banks continue to be able to access wholesale funding at relatively low costs and as a result these low funding costs have limited the banks’ needs to draw from the Funding for Lending Scheme introduced mid-2012. A number of factors have contributed to low wholesale funding costs over recent years and one of the main ones is proving to be the confidence concerning the resilience of the UK banking sector. There is some reported weakness in mortgage market activity since mid-2014, which reflects a slowdown in demand for secured credit and lenders are reporting that demand has fallen over the last three-quarters, could this be attributed this to the rise in household concerns about the affordability of housing?

Sadie Qureshi
Banking & Financial Services Consultant

[This article originally appeared on Sadie’s LinkedIn]

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