Bank chief intervenes in immigration issue

Inward migration from new EU member states has been important in easing labour shortages, the head of the Bank of England has said.

Speaking at a press conference to launch the latest quarterly inflation report, Mervyn King was critical of the lack of data on immigration.

But he suggested that practical experience from businesses on the ground showed that foreign workers are playing a key role in easing skills shortages.

Most recent figures show that since May 2004, some 176,000 people from the EU accession states have registered to work in the UK.

The Conservatives have been sharply critical of ministers for not limiting the number of workers from central and eastern Europe who are able to enter the country.

And the party has proposed an upper limit on immigration in a bid to reduce current immigration levels, although the needs of the economy would be taken into account under this policy.

Entering the debate, King said that cutting of the supply of foreign labour could "exacerbate the tightness in the labour market".

"The starting point for this is that we really have to admit that we know really rather little about this, primarily because the data on migration is so poor," said the Bank governor.

"We really have very inadequate data on migration and certainly on net migration.

"But we have some information on the number of nationals from the new members of the European Union who work in the UK.

"Those numbers are substantial, they are of the same order of magnitude as the natural increase in the labour force from growth of the population.

"So it has a significant impact on the size of the working population."

King said that if large numbers of migrant workers return home after an initial stay in the UK then the net numbers "may not remain very high".

And the Bank chief said that views picked up from visits to companies around the country had highlighted for him the role of immigration in helping address skills shortages.

"Inward migration has been pretty important in easing labour shortages," King said in response to questions from journalists.

"I am very struck myself in going round the country, asking companies whom I visit whether they have recruited or used labour from eastern Europe and many of them say they have.

"The numbers don't have to be very large for it to have a significant impact on easing particular labour shortages and therefore helping to prevent what might otherwise have been a faster upward pick up in the growth rate of average earnings.

"So if this were to come to an end then of course that would exacerbate the tightness in the labour market.

"But what it means in the longer run is very difficult because not only do these people add to the labour supply in the country, they also of course add to demand.

"So in the longer run it is not at all clear they would be changing the net balance between demand and supply, that is something we have to see.

"What they are there for is as a safety valve to deal with changing pressures in the labour market and that, I think, has been a factor that has helped to ensure that earnings growth did not respond as quickly to changes in the pace of growth of the economy as might previously have been the case."