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RUTH SUNDERLAND: Workplace Balance of Power Shifts to Workers

The labor market is central to the Bank of England’s thinking about inflation and interest rates. There are some aspects of the current cost of living crisis that the Old Lady can’t do anything about.

It cannot control energy prices nor alleviate bottlenecks in global supply chains. But it can send individuals and businesses a message that it’s serious about bringing inflation down to around the 2 percent target.

The Bank’s goal will be to instill that expectation in the minds of unions and workers, so that they don’t push for exorbitant pay increases.

When the pandemic hit, most forecasters expected benefit queues to get longer.  Instead, there has been something of a job miracle

When the pandemic hit, most forecasters expected benefit queues to get longer. Instead, there has been something of a job miracle

Companies may also be less inclined to try to raise their prices if they believe the Bank is seriously curtailing.

Thanks to decades of price stability, we have forgotten that inflation is one of the great economic ills. It affects the standard of living, eats away at savings.

For the UK, as an exporter of services and importer of goods, it creates unfavorable trading conditions. One of the disasters of the 1970s was industrial unrest and wage demands that created a self-fulfilling spiral.

When the pandemic hit, most forecasters expected benefit queues to get longer. Instead, there has been something of a job miracle, with incredibly low unemployment. This has not yet come with generous rewards.

However, it is an ominous sign, with a touch of black humor, that economists at the National Institute of Economic and Social Research have voted to go on strike after a 2 percent pay rise.

As they well know, with inflation at 5.1 percent, that’s a wage cut in real terms. They are not alone. The average wage is not increasing enough to keep up with the cost of living.

There may be a slowdown in perception as workers outside the economic think tanks may not have fully understood the damage their real incomes are doing.

Instead of demanding higher salaries, employees seemed obsessed with lifestyle issues such as the right to work from home forever.

But it’s only a matter of time and the workforce is in a strong bargaining position to demand more. The balance of power in the workplace has shifted drastically in favor of employees.

Companies are already struggling with staff shortages and living in fear of ‘The Great Resignation’. A recruitment agency estimates that more than 9 million people will be looking for a new position this spring.

Combine that with the layoff of older workers during the pandemic and companies are under a lot of pressure to pay more to attract and retain good people.

All the more reason for the Bank to make it very clear that it does not intend to allow high inflation to be anchored in the system.

This means that, barring a major shock, more interest rate hikes are on the way, on top of the 0.1 percent to 0.25 percent rise last month. But let’s keep the sense of proportion: the rates remain very low and are simply shunted out of emergency mode.

That is exactly what needs to happen when the economy recovers.

Lloyd’s move

If the Lloyd’s of London insurance market decides to leave its Lime Street headquarters, it will be a sad day. The Lloyd’s Building opened just after the Big Bang in 1986 swept away the cobwebs of the musty old town.

Towering over nearby Leadenhall Market, it embodied the spirit of the 1980s in all its brash, exciting excess.

The shiny metal was a confident symbol of optimism and modernity.

While the city’s old-fashioned jobbers and brokers were joined by a flood of American bankers, Richard Rogers’ masterpiece stated that the 300-year-old insurance market steeped in tradition was still a formidable presence.

As a young financial journalist, I drank the exciting sight of it, packed with insurers, in and out every day on my way to the office.

The transparency of the architecture, with channels, pipes and elevators made visible, was not always reflected in the functioning of the market itself.

There were deceit, scandal and disastrous losses for some members, who were known as ‘Namur’.

They were wealthy individuals who were personally liable down to their last cufflink or earring, but never expected this to happen. The market was reformed and recovered, just like after the pandemic.

But insurance on Zoom is just not the same. With the abandonment of the Lloyd’s building, an era is truly coming to an end.

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