The biggest constraint on growth in the UK is a labour shortage, a behavioural economist has warned.

Britain has lost an estimated 1.3m EU workers since Brexit, Roger Martin-Fagg said. There are 1.8m fewer 15-24-year-olds demographic profiles show and 200,000 55-60-year-olds have taken early retirement. Labour supply has fallen by 3.3m while demand has risen. Health and social care, hospitality, scientific and technical sectors have the largest number of vacancies.

Martin-Fagg suggested Britain has full employment despite the current 1.5m unemployed. He said a “big slab” of the jobless were unlikely to be a good match for vacant posts because of wrong location, skillset and possibly attitude. 

Speaking to recruitment membership and networking organisation Elite Leaders, Martin-Fagg said fewer young people coming into the job market meant labour supply problems will persist.

He predicted significant wage inflation as companies poach from each other, telling his online audience: “You will be instrumental in the poaching game; that isn’t a criticism, it’s inevitable.”

Gen Z, those born between 1997-2012, will continue to be “demanding employees”, he said, and favour hybrid working. As the largest proportion of the workforce, employers will have to learn how to manage them. 

Looking ahead to 2022, Martin-Fagg expects average wage growth of 6%, an inflation rate of 4-5%, nominal GDP (spending) up by 8% real growth of 3% and interest rates to rise to 2% by the year end.

He dismissed forecasts of stagflation (weak economic growth and high inflation and high unemployment) as wide of the mark and scare stories.

Martin-Fagg said central bankers hopes that current inflation is a “blip” are wrong. He said $17tn (£12.79tn) of new money had been created by central banks globally in Covid support. This had created an “inflationary gap – too much money chasing too few goods”.

He added: “There is no way supply can rise fast enough to match this, so inflation is not a blip but will remain in the system until purchasing power is eroded and demand slows to match supply.” 

The inflationary boom will run for at least another two years as wages grow faster than prices, he added.

Martin-Fagg expects to see the first signs of recession in 2025/26 and suspects it will hit in 2027/28. Asked for the best way forward, he said low levels of debt on the balance sheet will help protect against future downturns.

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