'War for talent' will fuel inflation debate at Bank of England
Recruiter Robert Walters (RWA.L) tells the City today that it is seeing a “war for talent and significant wage inflation”. The phrase is likely to have Bank of England governor Andrew Bailey biting his nails and outgoing economist Andy Haldane telling him: “I told you so.”
Inflation has been one of the hottest debates in global economics this year. Most central bankers — Bailey included — argue price rises are likely to be temporary, caused by supply chain bottlenecks and surging orders as the economy reopens.
But wage increases point to more sustained pressure. When you bump up pay, it’s very difficult to turn around and lower it again. And with more cash in their pockets, workers are likely to drive up prices by going out and spending.
“Wage inflation has begun to emerge, with salary uplifts of 20-30% now commonplace for hard-to-source roles and talent,” Robert Walters said of the UK market.
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Recent data from the Office for National Statistics showed UK wages rising at an eye-watering rate of 6.6%. Inflation has already burst through the Bank of England’s 2% target to hit 2.5%.
Haldane has for a longtime been the lone voice at Threadneedle Street warning about inflation, but more division is beginning to emerge. Dave Ramsden and Michael Saunders both recently argued the time is right to start turning off the money taps so the economy doesn’t overheat. They are likely to point to Robert Walters’ update as another warning sign flashing red on the dashboard.
Don’t rule out Bailey & Co’s transitory argument just yet, though. Robert Walters works at the top end of the professional services market, serving banks and law firms. It’s far from clear that wage inflation is happening across the economy.
More than 1 million people are still on furlough, which skews the data. Fewer low paid employees exaggerates the importance of wage hikes at the top end of the pay scale.
The ONS itself has told people to take its wage data with a pinch of salt. Comparing wages to this time last year — when the economy was in deep freeze and many people were taking pay cuts — skews the numbers. The true rate of underlying wage inflation is likely between 3.2% and 4.4%. High, but now runaway.
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Gertjan Vlieghe, a Bank of England rate setter, came out in favour of the transitory argument on Monday. In a speech, Vlieghe said the UK economy was still not “out of the woods” and argued price pressures were likely to ease next year. Stimulus will be needed “for several quarters at least, and probably longer,” he said.
Vlieghe’s position means the Bank of England's Monetary Policy Committee will likely leave policy unchanged at next week's meeting, even if some members vote the other way. But updates like those from Robert Walters mean it's not as comfortable a position as it was a few months ago.
Watch: UK inflation jumps to 2.5% - close to a 3-year high
