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UK seeing a ‘massive adjustment’ in labor market, LSE director says

  • British businesses have been blighted by a combination of worker shortages and supply chain disruptions that have sent wages and prices skywards across a range of sectors.
  • The U.K. consumer price index climbed 2.1% in the year to July, above the Bank of England's target, having hit 2.5% in June, its highest reading since August 2018.

A lorry in Staffordshire, England.Loop Images/Bill Allsopp | Passage | Getty Images

The U.K. is undergoing a structural overhaul in its labor market due to Covid-19 and Brexit, and policymakers should "let the labor market do its job," according to Minouche Shafik, director of the London School of Economics.

British businesses have been blighted by a combination of worker shortages and supply chain disruptions that have sent wages and prices skywards across a range of sectors, including haulage and logistics, care and agriculture.

The recent surge in manufacturing costs and energy prices is expected to trigger a spike in inflation over the coming months. The U.K. consumer price index climbed 2.1% in the year to July, above the Bank of England's target, having hit 2.5% in June, its highest reading since August 2018.

The Bank has maintained that inflationary pressures are transitory but has raised its forecasts, and now expects inflation to peak above 3% by the end of the year before normalizing.

Shafik, the former deputy governor of the Bank of England, told CNBC at the European House Ambrosetti Forum over the weekend that she agrees with the central bank's prognosis.

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