There are also signs of the same – excess capacity in some areas, excess demand in others – within the UK economy. And although they’re less startling than in some areas of traded goods, it may take longer, if they persist, to accommodate via matching shifts in supply. It’s these more domestic mismatches we’ll have a look at now. Domestic mismatch and the UK labour market Despite the prevailing lockdown, signs of a recovery in the UK labour market began to appear early this year. Surveys suggest employment stabilised in February. The numbers of unemployed and on furlough peaked at around the same time. Job vacancies, which had actually reached a low during the first lockdown, began to rise sharply. All this seems of a piece. Yet in some ways it’s odd – odd, at least, if you think of employers as identical and employees as a similarly homogeneous group – that vacancies and the use of the furlough scheme should co-exist at all. Imagine the corporate sector was like a single representative firm, selling only one thing and employing people with identical skills and characteristics (whose wages are therefore all the same as well). Why would it choose to create a new job, with all the associated search costs, when it could simply re-employ someone on furlough? Why should unemployment start to fall when there were still around five million people on the CJRS, as was the case in late January? There are always job vacancies in the economy, even when unemployment is quite high.
Ida Wolden Bache: The conduct of monetary policy Introductory statement by Ms Ida Wolden Bache, Governor of Norges Bank (Central Bank of Norway), at the hearing of the Standing Committee on Finance and Economic Affairs of the Storting (Norwegian parliament) in connection with the Storting's deliberations on the Financial Market Report, 9 May 2023. ***  Accompanying charts of the speech Thank you for this opportunity to report on the conduct of monetary policy. When I was here in April last year, Norges Bank had started a gradual normalisation of the policy rate following the coronavirus pandemic. Chart 1: In March 2022, a gradual rise in the policy rate was envisaged The Norwegian economy had recovered after the sharp downturn during the pandemic. High energy prices and a sharp rise in international goods prices had driven up consumer price inflation to a level markedly above the inflation target. Economic activity was strong, and job vacancies were high. Norges Bank expected rising wage growth and higher imported goods inflation to push up inflation through the year, and overall price inflation was projected to be 3.4 percent in 2022. The policy rate was projected to rise towards 2 percent over spring 2023. Chart 2: The policy rate has been raised more than projected a year ago These forecasts were less than accurate. The policy rate has been raised faster and more than projected in March 2022.