In August UK CPI inflation was 9.9%, and a third of the total was directly accounted for by energy (Chart 1). The further indirect effects are likely to be material and have been a factor in the marked pickup in CPI services inflation to 5.9% in August, contributing over 2% to the total. Chart 1: Decompositions of headline inflation rates Contributions to annual consumer price inflation  Sources: ONS for the UK, BEA for the US, Eurostat for the EA and Bank calculations. The second noteworthy development is the trend in UK labour participation. This looks like being one of the most significant economic legacies of the pandemic. Around the turn of the year there were signs that the recovery in the economy was bringing people back in to the labour market; a version of the “encouraged worker” effect which is often seen during cyclical upturns. However these signs petered out, and by July 2022 there were about 500,000 fewer people classed as participating in the labour market than pre-pandemic. In this way the UK stands out compared with most other major economies; the UK participation rate is 0.7 percentage points lower than 2019 levels whereas the median OECD country participation rate is 0.7 percentage points higher[2] (Chart 2). Chart 2: Change in inactivity rate between 2019 and Q1 2022  Sources: OECD and Bank calculations. Notes: UK inactivity rates published by ONS typically use the age band 16-64, but 15-64 are used here for international consistency.
A temporary phase, which we are in, of low interest rates makes it more likely that we will return to a situation where savers get a better deal. It is a temporary phase, but there is no doubt that there are consequences for those looking to earn income. This is not a situation that is ideal. But we are still in the legacy of the crisis and I think this policy path is correct. We also always say that, in terms of the speed of the recovery, European fiscal policymakers can do more. Those countries which have fiscal space can do more to accelerate the recovery. Some have said that the continued low interest rates and quantitative easing have had benefits for large investment funds, and for the area of property investments in particular these benefits come at the expense of individual prospective house buyers, or indeed people who end up renting. It’s become an issue here as it has in other parts of Europe. How would you respond to that? The low interest rate environment has many benefits. It helps to create jobs. For those with a 1/4  BIS central bankers' speeches  mortgage, it reduces the cost of maintaining that mortgage. For highly indebted governments there is a saving in terms of debt service payments. But there is no doubt about it: it does mean that it raises the purchase price of homes.