UK Wage Growth Could Accelerate Interest Rate Hike

A Bank of England policymaker has argued that pay growth may be at a “turning point”, strengthening the case for higher interest rates.

The comments came as the Bank’s governor, Mark Carney, said inflation was expected to dip below 1% in coming months, which means he will have to write to the chancellor to explain why inflation is more than a percentage point below the 2% target. Carney signalled financial markets were right to rule out an interest rate rise any time soon.

Ian McCafferty, a member of the Bank’s rate-setting monetary policy committee (MPC), set out his reasons for raising interest rates sooner. Speaking at a breakfast organised by the Institute of Directors in Liverpool, he talked of a “remarkable” recovery in the economy, and said raising rates now would ensure that increases will be “gradual and limited”. He is one of two MPC members who have voted for higher rates since August.

Carney predicted a slow and steady rise in inflation towards 2%, in an interview with the Birmingham Post. He added: “Our message is that interest rates are going to increase. We don’t know the precise timing that will start, but what we are emphasising to businesses, to mortgage-holders, to homeowners and to individuals is that what’s most important is the path of interest rate adjustments. That path is expected to be a gradual set of interest rate increases and to a more limited extent than the past.”

McCafferty noted that “the main puzzle has been the recent weakness of average weekly earnings which has been at odds with the strength of the survey indicators”. But he added that the most recent private sector pay data suggested a pickup in wage growth.

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