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A wave of early retirement has been blamed for forcing up interest rates and inflation. That is according to Andrew Bailey, the Governor of the Bank of England, who highlighted a sharp decline in the numbers of Britons remaining in the workforce.
The official said this was “part of the reason why we have had to raise the Bank Rate by as much as we have.”
This month, the central bank took the decision to hike interest rates for the 11th consecutive time to 4.25 percent.
Inflation continues to run high, with the CPI rate rising to 10.4 percent in the 12 months to February, in a shock for experts.
With the central bank target for inflation remaining at two percent, concerns continue to linger.
Speaking to the London School of Economics last night, Mr Bailey said: “The rise in economic inactivity is a change to the supply of labour, independent of demand, in particular by older workers.
“If those workers have accumulated enough savings to sustain a desired level of consumption much like the one they had before their early retirement, at least for a while, aggregate demand will not have fallen by as much as aggregate supply.
“We should expect this to put upward pressure on inflation in a way that would call for a higher level of interest rates to dampen demand.”
The number of people who are “economically inactive” – not in work, not looking for work, and not studying – has rise by 500,000 since the COVID-19 pandemic.
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However, Mr Bailey described the rise in activity of people aged 50 to 64 as “particularly striking”.
His remarks come as Chancellor Jeremy Hunt has made a concerted effort to try to get more Britons back to work.
The Treasury has taken a series of steps in the spring Budget in the hopes of enticing early retirees back into the workforce.
This included scrapping the pension Lifetime Allowance, as well as hiking the Money Purchase Annual Allowance (MPAA) and the pension annual allowance.
It therefore appears the Chancellor and the Bank of England Governor are in lockstep on the issue.
Mr Bailey did, however, acknowledge other factors are at play when it comes to the current economic situation.
Post-Brexit changes, the COVID-19 pandemic and Russia’s invasion of Ukraine were all cited by Mr Bailey as contributing factors.
However, some were less than impressed with the Governor’s remarks on early retirement last night.
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Dr Anthony Hinton took to Twitter, and remarked: “No, Mr Bailey, many years of you and your colleagues printing money that was not earned is what has forced up inflation.”
Ian Hodson said: “Think we have a real problem if the Governor of the Bank of England believes it’s those retiring early and not greedy corporations raising prices that’s driving inflation.”
While Edward Cree stated: “If people can afford to retire earlier, that is a consequences of rising real wealth – and is a good thing!
“Inflation happens when nominal wealth rises faster than real, which early retirements cannot cause.”
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