The Bank of England will move quickly to raise interest rates if pay rises take off but productivity does not, its new deputy governor warned.
Giving her first interview since taking charge of markets and banking at Threadneedle Street, Minouche Shafik said the Bank would act if inflation becomes a threat.
“If wage increases are expected but productivity is performing well we can wait for longer; if those wage increases are not accompanied by productivity increases then I think we will have to move more quickly on rates because inflationary pressures will build up. I think that’s the key choice that we face,” she told The Yorkshire Post.
Despite economic growth in the UK, wage growth and productivity have remained surprisingly weak.
The Bank’s rate-setting monetary policy committee (MPC), of which Shafik is a member, has stressed that rate increases will be “gradual and limited” if possible. Rates have been on hold at 0.5% since March 2009.
Wage rises have lagged behind inflation for the majority of the period since 2008, meaning a prolonged period of falling real pay for UK workers.
The MPC has made it clear that it will wait for evidence that workers can expect a sustained pick up in real pay before raising rates.
via The Guardian