According to a recent newspaper interview, Bank of England Governor, Mark Carney, may not necessarily wait for real wages to increase before raising interest rates, focusing instead on the underlying wages trend.
Following the release of official figures last week showing that real wages are lagging behind inflation, the Bank said it would be putting “particular importance” on the prospective paths for wages and labour costs. At the same time, Mr Carney halved the Bank’s earnings growth forecast for the year to just 1.25 per cent.
However, according to his interview at the weekend, Mr Carney said that the most important thing was for the path, or trend of wage growth to be on the up rather than seeing the actual rise.
This could mean that rates rise sooner than the general prediction of February next year, particularly since some members of the Bank’s Monetary Policy Committee (MPC) believe that the risks of domestically generated inflation are increasing.
More will be known when the minutes of the August meeting are released later this week but Mr Carney hinted that a split vote was getting closer. He added that, while the MPC is united in agreeing that rate rises will be limited and gradual, individual members may have “different views on the exact timing” of the rise.
The Committee has been united on keeping interest rates at their historic low for more than five years and the last time there was a split vote was in July 2011, when two members voted for a quarter-point increase.
As the Governor pointed out, the “easy part” of the expansion has now happened but the hard part for the Bank is providing guidance for a sustainable increase in productivity and real wages.
