BoE's Cunliffe sees UK's reserve of spare labour 'close to the end'

LONDON (Reuters) - Britain's reserve of spare labour is running out, which should help to boost poor British productivity growth as companies focus increasingly on less labour-intensive forms of production, a top Bank of England official said on Monday. BoE Deputy Governor Jon Cunliffe endorsed the central bank's central forecast last month that poor productivity growth - Britain's biggest economic challenge - should improve gradually over the next few years. But Cunliffe said the bank's Monetary Policy Committee would find itself under greater pressure to act to control price pressures if wage growth continues to pick up without a commensurate improvement in productivity. In a speech to the Automotive Fellowship International in Luton, in south England, Cunliffe said a "reservoir" of labour supply allowed the economy to grow strongly with poor productivity and without generating inflation. "We are now getting close to the end of that reservoir of spare labour supply. It is very difficult to say how close, measuring spare capacity in the economy with great precision -- to single decimal points -- is not really possible," he said. As that supply runs out, companies will have an incentive to switch away from more labour-intensive forms of production, boosting productivity in the process. But he said that productivity growth due to a reallocation of resources remained weak. A substantially larger proportion of loss-making firms than in the past suggested "more than a hint of 'zombiness' in the corporate sector", he added. Data last week showed British workers' pay grew at its fastest rate in nearly four years in the three months to April, prompting rate-setter Kristin Forbes to a say an interest rate hike was coming in the "not-too-distant future". Cunliffe repeated the BoE's guidance that interest rates were likely to rise from their present record low of 0.5 percent, albeit gradually and to a level below their pre-crisis average. (Reporting by Andy Bruce; Editing by Larry King)