Amazon’s pledge to create 5,000 new jobs in the UK this year alone is a clear vote of confidence in British tech and follows similar announcements by Google, Facebook and Snapchat last year.
New technologies are highly disinflationary and are changing the nature of work. Weak wage growth has forced the Bank of England to revise down its estimate of the UK’s equilibrium unemployment rate.
This will give the BoE some more latitude to tolerate above-target headline inflation. So too will the latest CPI numbers: core inflation edged up modestly and remains in check. An ultra-loose monetary policy will make it easier for the Government to bring down its fiscal deficit, which for once, looks set to fall below target. It may also ensure sterling remains ‘competitive’. The Federal Reserve could hike four times this year while the BoE remains on hold.
Summary
- Equilibrium unemployment rate now around 4½%
- Technology has altered the unemployment-inflation trade-off
- Fed will speed up pace of rate hikes this year, but the BoE may stay on hold
