As the MPC has learnt more about the labour market, the trough in unemployment has been revised down in successive forecasts over the last year (Chart 4). However, such is the weakness of demand from the recession in activity that unemployment is forecast to rise from the start of 2023 throughout the three years of the forecast. The sustained labour market tightness seen to date, together with the influence of much higher inflation, have led to nominal pay growth increasing materially through 2022, at a consistently faster rate than expected in successive forecasts (Chart 5). Annual growth of private sector regular pay reached 6.6% in the three months to September. It is forecast to rise further in the near term before falling back as unemployment rises, spare capacity opens up and as inflation falls. See Shocks, inflation, and the policy response − speech by Dave Ramsden | Bank of England See Treasury Committee oral evidence: Bank of England monetary policy reports May 2022 6 The Government announced a review of labour market developments in the Autumn statement. 7 The MPC will be undertaking a supply stocktake in coming months to explore these issues in more detail. 4 5  Bank of England  Page 8  Sources: ONS and Bank calculations  Increasing Inflation expectations Increasing evidence of second round effects in wage and price setting has been a key focus of the MPC over the last year.
When completed at the end of next year, we expect that these changes will substantially improve the stability of the market. Indeed, the work completed to date has already reduced the amount of activity being financed on an intraday basis from 100 percent to about 70 percent, and we project that intraday credit usage will decline to no more than 10 percent by the end of next year. By removing the clearing bank from the role of substantial intraday lender, and making tri-party repurchase exposures truly bilateral, we expect that market participants will have better incentives to manage their liquidity and credit risks more prudently. While these changes represent positive developments that will enhance the stability of the triparty repo market, an important challenge remains. Current reforms do not address the risk that a dealer’s loss of access to tri-party repo funding could precipitate destabilizing asset fire sales, whether by the dealer itself, or by the dealer’s creditors following a default. Industry participants have yet to fully embrace the role they must play in finding a solution to this problem. As a result, I would urge industry participants to begin work on this issue without further delay. In fact, this is one of the motivations for convening today’s workshop – to start the dialogue. As several of the speakers will discuss in greater detail today, when fire sales occur they can undermine the stability of other markets beyond the tri-party repo market.