After seven years of continuously creating jobs, and continuously falling unemployment, the UK labour market remains in rude health. It also appears to be tight. One way of gauging that comes from comparing the stock of vacancies (V) in the economy (aggregate labour demand) with the stock of people seeking work (U, aggregate spare labour supply). Chart 5 plots two measures of the V/U ratio in the UK.3 They are at their highest since the 1960s. Both ratios also well in excess of 100%, suggesting demand for labour exceeds available supply. 3  The broader measure is the vacancy-effective searcher ratio, where effective searchers are a weighted average of the employed, unemployed and non-participants. The weights on the employed and non-participants are their job finding probabilities relative to the job finding probability of the unemployed. The unemployed therefore have a weight of one. 5  All speeches are available online at www.bankofengland.co.uk/speeches  5  Chart 5: Vacancy to unemployment ratio Ratio, percent 160 140 120 100 80 60 40 20 0 2002  2004  2006  2008  2010  Vacancy-Unemployment ratio  2012  2014  2016  2018  Vacancy-Effective searcher ratio  Sources: ONS and Bank of England calculations. Other evidence confirms that picture. The UK unemployment rate (3.8%) is below the Bank’s estimate of its long-run equilibrium rate (or NAIRU) of 4 ¼%. In business surveys, a majority of companies point to acute skills shortages across a range of professions and industries.
Chart 32: Real interest rates and unemployment (1999 – latest) Unemployment rate (per cent)  14  UK  12 US 10 Euro area 8 6  Euro area latest  4 2 UK latest  0 -6  -4  -2  US latest  0 2 Real interest rate (per cent)  4  6  8  Sources: Thomson Reuters Datastream, ONS and Bank of England calculations. Notes: Real interest rates defined in simple terms as current short-term central bank policy rate minus headline CPI inflation rate. 31  All speeches are available online at www.bankofengland.co.uk/speeches  31  The UK occupies an unusual, mid-Atlantic position. It has similar levels of real interest rates to those in the euro area, at the same as having similar levels of unemployment to those in the US. Put differently, relative to both the US and the euro area, and its historical past, the current UK monetary stance looks relatively accommodative. For the same output gap and a higher rate of inflation, the UK’s monetary stance is 2 percentage points looser than in the US. There may well be good grounds for these international differences – for example, differing levels of neutral real rates and different natural unemployment rates. Nonetheless, the very different starting positions of the economy and monetary policy should give us cause to pause before simply assuming central banks should be moving synchronously, even when faced by a common global shock.