Bank of England Says Rate Hikes Tied to Wage Rise

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

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza