(Bloomberg) — Bank of England Governor Andrew Bailey said that the UK is “near or at full employment” but also signaled he’s now less concerned about a wage price spiral developing.

Bailey said he is less wary of second round effects becoming entrenched and fueling a further surge in prices than he was a year ago. Speaking at a panel event at the Bank of Italy Symposium, he said that there is “very limited evidence so far” that an increase in unemployment is needed to curb inflation.

Bailey’s remarks suggest he is less concerned about the prolonged tightness of Britain’s labor market keeping price pressures high and preventing the BOE from cutting interest rates. It’s likely the last comment from a member of the rate-setting Monetary Policy Committee before the next decision on March 21, when investors think borrowing costs will remain at a 16-year high of 5.25%.

His comments came after official figures on Tuesday showed the UK labor market loosening, with a rise in unemployment and redundancies as well as a slowdown in pay growth. However, unemployment is still below 4%, and widespread worker shortages since the pandemic have helped to fuel rapid pay rises.

“If we’d been having this conference a year or more ago, my big concern was that this duration would fuel the embedding of second round effects,” Bailey said Tuesday. “Now tentatively these concerns I think have reduced and that again is because I think monetary policy has played its part.”

He said that the slowing inflation while at full employment is “unusual” historically and has been driven by the unwinding of global supply shocks, such as the pandemic and energy price surge. 

Inflation has fallen from double digits to 4% and is expected to drop below 2% in the coming months when households benefit from another drop in energy bills. The tumble in inflation has come despite ultra-low unemployment, which is little changed compared to a year ago even after the rapid tightening in monetary policy by the BOE.

A continued tight labor market is seen as one of the biggest hurdles to the BOE cutting rates with markets expecting the first reduction in August, followed by at least one more by the end of 2024.

While BOE rate-setters are still concerned about the labor market, Tuesday’s data showed that pay growth excluding bonuses unexpectedly edged lower to 6.1% in the three months through January. It was the fifth straight fall but is still seen is far too high for the BOE to keep inflation at its 2% target sustainably.

“Whichever way you look at it, it looks like we are near or at full employment,” Bailey said. “It doesn’t get a lot of comment, but we have seen very limited evidence so far of an increase in unemployment as a sort of necessary condition of reducing inflation.”

However, Bailey cautioned that the easing in inflationary pressures has not been “benign” and “does not take away from a difficult reality that the world remains a much more uncertain and dangerous place than we have been used to.”

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