The hard yards - speech by Andrew Bailey i  Given at the Society of Professional Economists Annual Dinner  The hard yards ‐ speech by Andrew Bailey | Bank of England  Page 1  Published on 27 September 2021  Andrew Bailey looks at the varying forces currently acting on the economy and what they mean for monetary policy. One is the supply bottlenecks that are affecting the availability of goods and services. While they will push up on the cost of living, that will likely only be temporary. The labour market presents more of a puzzle. Job vacancies have been at record levels, but as the furlough scheme ends, it is uncertain what will happen to hiring and wages. The Monetary Policy Committee focuses on medium-term inflation rather than transient factors. But if these factors are likely to be more persistent, the committee will step in and adjust monetary policy as needed. Speech I am going to speak this evening about the state of the economy and about monetary policy as the recovery from Covid unfolds. The title of this speech, The Hard Yards, is I think a saying that originated in sailing, though I associate it more with forward play in rugby. I remember saying, around a year ago when the recovery looked rapid, that the hard yards were yet to come, and while I don’t want to claim any great prescience, it appears to be turning out that way.
Such an outcome is likely to raise the rate of unemployment consistent with stable wage growth i.e. the NAIRU. The second outcome is different. Vacancies may be temporarily higher, and above their steady state level in the short-run, if firms are anticipating that it will be harder to find workers in the future when unemployment falls. In that scenario, demand picks up, the impact of matching frictions in the labour market dissipate over time, and both vacancies and unemployment fall. The NAIRU would be less affected in this scenario. Another possible explanation is that the level of advertised vacancies is elevated due to employers overestimating the growth of demand to come just as the speed of the recovery falls off. In this case, some of the vacancies turn out not to be jobs as employers change their mind, or at least hiring is put back. The implications of these labour market outcomes are quite different for growth, inflation, and thus monetary policy, which illustrates the uncertainty we face. Before turning to inflation, I want to say something on earnings. On the face of it, headline earnings are elevated. Pay growth of around 8% for July (the latest available number) is very high.