In recent decades, a tight labour market - measured by the number of vacancies per unemployed worker- has been a reliable indicator of inflationary pressures The mechanism is simple: firms needs to offer higher wages to recruit workers, this increases costs and feeds through into higher prices. There is no reason to think that this mechanism has broken down. But the working of the mechanism may well have changed and that the dismal decade since the financial crisis has eroded some existing labour market linkages and led to the growth of new connections. And the equally dismal prospect of Brexit, with possible dislocation of inflows fo workers to the UK, is probably already changing the labour market. So while a strong labour market stills leads to inflationary pressures, we need to to re-assess how to measure labiur market strength. Evidence from the US suggests that the "vacancy yield", the number of hires per vacancy has fallen. There is some evidence that this is because firms have gained power in the labour market over the past decade and are using this to suppress wages, particularly for job-to-job movers. It is not clear how much of this applies in the UK- where our data is not so detailed - but the US experience has usually been a good guide to the UK, and the argument that firms have gained power in the labour market fits in with anecdotal evidence. The US evidence suggests that one indicator may have kept its power as an inflationary canary: the number of workers hired from unemployment. It would be sensible to keep an eye on this in the UK

A large increase in minimum wage was introduced by a Chancellor who had recently been re-elected on a manifesto that contained no hint of such a bold move. Although this is a substantial hike in the minimum wage, the evidence suggests it will have only a modest direct impact on employment. And it might actually increase employment. The increase in the minimum wage will switch income from low-wage employers to the government (through reductions of in-work benefits paid as wage supplements) and to low paid workers. Both these groups have higher propensities to spend than firms and so we might expect an increase in aggregate demand and, through this, higher employment. In addition, income tax receipts ought to increase income tax receipts, taking pressure off a Chancellor constrained by self-imposed and unnecessary fiscal rules. If these additional receipts were used to fund infrastructure investment, further increases in employment might result.