Bank of England’s Pill warns labor market slack won’t kill inflation risk

The Bank of England’s chief economist Huw Pill is making a case that sounds counterintuitive at first glance: even as the UK labor market loosens up, inflation risks haven’t gone anywhere. In a period where unemployment is climbing and hiring is slowing, Pill insists that the threat of second-round effects, where businesses and workers ratchet up prices and wages to offset rising costs, remains very much alive. The numbers behind the worry UK Consumer Price Index inflation sat at 2.8% in April 2026, holding steady from the prior month. That’s already above the BoE’s 2% target, and forecasts suggest it could climb past 3% later this year. The primary culprit: energy costs, amplified by ongoing tensions in the Middle East that have added more than a full percentage point to inflation projections. Meanwhile, the labor market tells a different story. Unemployment has risen to roughly 5% to 5.2%, with the output gap estimated at around 1% of potential GDP. In plain terms, the economy is running below its full capacity, businesses are hiring less, and there’s more competition for fewer jobs. Why slack might not be enough The core of Pill’s argument centers on what economists call second-...