Falling unemployment and recovering productivity point to rising wage pressure that should put the Bank of England on alert to raise interest rates sooner rather than later, a member of Threadneedle Street’s monetary policy committee said.
Martin Weale, one of the four independent members of the nine-strong MPC, said it was possible the Bank was underestimating the amount of slack in the labour market and that this would point to borrowing costs rising more rapidly than envisaged in last month’s inflation report.
But in a balanced assessment of the economy given in a speech in Belfast, Weale said that if wages continued to grow unexpectedly slowly that would argue for maintaining a high level of stimulus to the economy.
City speculation about the timing of an interest-rate increase has intensified since the Bank’s governor, Mark Carney, said in his Mansion House speech that a rise could come sooner than financial markets have been expecting. However, minutes of the June meeting of the MPC showed Weale joining his eight colleagues in voting for rates to stay on hold.
Weale said in his speech: “One factor is that people who have been recently unemployed are less productive than average. If this is the case, then as the economy continues to grow, unemployment could fall more quickly than the MPC expects. That on its own certainly points to a need for a policy profile tighter than in our May forecast.”
via The Guardian
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