A labour shortage is holding back economic growth and contributing to inflation, according to an economic think tank.
Paul Dales, Chief UK Economist at Capital Economics, an independent economic research business based in London, said these effects could keep wages high and stall interest rates for longer.
The UK had net inward migration of 672,000 in the year to June 2023, mostly from non-EU countries and for work reasons, above estimates for the year ending December 2022.
However, Dales said this did not increase the labour supply significantly, adding that this could indicate skill mismatches or people leaving the workforce.
“The UK’s shortage of labour since the pandemic has held down economic growth and boosted inflation,” he said.
“At the moment the supply of labour appears to fall short of the demand for labour. That’s why we suspect wage growth will ease only slowly and the Bank of England won’t cut interest rates as soon as most expect.”