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In the News

Stagflation - How labour shortages are causing rising prices and interest rates

Geoff Riley

13th June 2023

With the latest labour market data today, it seems self-evident that monetary policy is going to be tightened again, meaning higher interest rates going forward and bad news for mortgage borrowers going forward. And if it's bad news for them, it's bad news for consumer spending, and, by definition, the wider UK economy too.

This short Sky News video looks at the cost pressures facing restaurants in the UK.

How a shortage of workers is pushing up wages, inflation and interest rates

Another report looking at the impact of long-term sickness on the UK labour force highlights the fact that there are now 2.6 million people not working due to health issues, and all of this comes at a time when unemployment is only 3.8%. No wonder that wage growth is still strong, albeit lagging behind inflation.

However, more importantly, you might want to think how this would be modelled using AD-AS analysis and the implications of this for macroeconomic objectives.

Please read: Pay rise surprise leads to forecasts of higher interest rates

Geoff Riley

Geoff Riley FRSA has been teaching Economics for over thirty years. He has over twenty years experience as Head of Economics at leading schools. He writes extensively and is a contributor and presenter on CPD conferences in the UK and overseas.

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