Bank of England officials are still grappling with labor-market measures they put at the heart of their policy almost two years ago.
Kristin Forbes said on Tuesday that the gap between the number of hours people are working and what they say they want to work is wider than officials expected. Governor Mark Carney said the central bank will update its thinking on the discrepancy in its next quarterly Inflation Report in February.
A tightening U.K. labor market is a key reason why officials are moving toward an interest-rate increase, though difficulties in measuring slack and understanding how that will feed through to inflation means they don't yet have all the answers.
``We will update our perspective on the gap between what people want to work and what they're actually working,'' Carney told lawmakers. ``It is a source of slack in the labor market, without question. Our job is to determine how much slack that represents and what the implications are for inflation.''
Part of the gap can be explained by an increase in part time work and zero-hour contracts, Carney said. The number of hours people say they would like to work has fallen somewhat over the past six months, according to the Bank of England, though it remains high compared with pre-crisis levels.
The bank said that as real income growth picks up, employees may feel able to work fewer hours and maintain their level of expenditure. At a Parliament hearing, Forbes told lawmakers that some workers are already feeling more comfortable in their jobs and taking more vacations.
According to the Office for National Statistics, people working fewer hours, combined with an increase in total output, pushed productivity to pre-crisis levels in the second quarter.
That hasn't made up for the post-recession weakness, though. Output per hour was still 15 percentage points below where it would have been had productivity continued on its pace before the downturn.