Central Banks Look To Different Paths To Deal With Higher Inflation:

Last week inflation continued to dominate the headlines. Various pundits and policy makers forecast doom, either from too much inflation or in some cases because there isn’t enough. New US figures released last week showed a slowdown in price rises. This was immediately declared a win for team transitory,. However, closer inspection showed prices could still be rising once certain one-off effects were accounted for. The core message is still that many economies are recovering far quicker than battered global supply chains can cope with.

The US central bank seems content to let inflation run hot while global supply chains sort themselves out. Meanwhile, the Bank of England is keen to slow things down to a speed the supply side can keep up with. Both approaches have risk. High inflation can become difficult to shift if people come to expect it and start asking for higher wages. This could mean the bank has to take more drastic action down the road. But trying to tamp things down too soon risks derailing a fragile UK recovery, which could be very difficult to get going again. Both sides need to practice moderation.

IMF warns of slowing growth and expects UK to lag

The latest global economic outlook from the IMF has slightly reduced its forecast for global economic growth. The global economy is projected to grow 5.9% in 2021 and 4.9% in 2022. The downward revision of 0.1% for 2021 reflects a slow down in growth for advanced economies and worsening pandemic dynamics for developing countries.

Developing countries have struggled to control the spread of Covid. Governments delayed policy decisions and the limited supply of vaccinations has further slowed recovery. In contrast, most advanced economies have now reached pre-pandemic levels, although recent supply-chain problems have weakened growth in these areas. The IMF predicts the UK’s recovery from coronavirus will likely lag other countries. It also expects that by 2024 the economy would remain 3% smaller than the pre-pandemic forecast. Other developed countries are expected to exceed the growth predicted before the pandemic.

Recruitment firms benefit from buoyant jobs market

The most recent UK labour market data showed the workforce is continuing to recover with payroll up 207,000 in September. The number of job vacancies rose to 1.1 million while the unemployment rate fell to 4.5% from 4.9%. However, figures indicated the UK labour force is still significantly smaller than it was before the pandemic began. Salaries have seen strong growth, with average wages up 7% last quarter. But, these figures are distorted by the effect of pandemic restrictions.

Recruitment firms are reaping the benefit of a tighter labour market. Trading updates from recruitment companies also showed significant growth. Last week Hays Plc reported a 41% increase in fees with good growth in all regions. Earlier this month two other listed recruiters, Robert Walter and PageGroup, upgraded their profit forecasts for the year as they benefit from a shortage of candidates driving up salaries. This has reflected well in their share prices recently and all three are above their pre-pandemic levels.



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