• Text size      
  • Send this article to a friend
  • Print this article

Governor signals wages key to interest rate rise

Bank of England governor Mark Carney has signalled that Britain's faltering wage growth is to have an increasingly important bearing on when interest rates will rise.

His remarks could dampen speculation about a rate hike by the end of this year, with the latest figures showing wage rises running at 0.3%, well below inflation at 1.9% - meaning that pay is falling in real terms.

In a speech at the Commonwealth Games in Glasgow, Mr Carney said policy makers would update thinking at next month's quarterly Inflation Report on how to take into account the prospects for pay.

Wage growth is already one of a number of indicators used by the Bank's Monetary Policy Committee (MPC) to assess the level of "slack" or wasteful spare capacity in the economy - which they want to see narrowed before hiking rates.

But Mr Carney's remarks appeared to suggest that next month the issue of pay could be given an added emphasis within the context of this "forward guidance" framework on rates.

He said: "While some indicators such as wages suggest that there was more labour supply than we had previously thought, it is also true that spare capacity is being used up a bit more rapidly than we had expected.

"A key judgment for the MPC is when and to what extent these developments will translate into real wage growth, and that wage growth into price pressures.

"Next month's Inflation Report provides the next opportunity to update our thinking."

His remarks appeared to echo a passage in the newly-released minutes of the latest MPC meeting.

Rates are at a record low of 0.5 per cent.

Contextual targeting label: 
Finance

Commenting & Moderation

We moderate all comments on HeraldScotland on either a pre-moderated or post-moderated basis.
If you're a relatively new user then your comments will be reviewed before publication and if we know you well and trust you then your comments will be subject to moderation only if other users or the moderators believe you've broken the rules

Moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours. Please be patient if your posts are not approved instantly.

249879