Tags: carney | bank of england | rate | rise

Carney: UK Rate to Rise by Spring 2015 as Wages Recover

Tuesday, 09 Sep 2014 07:16 AM

Bank of England Governor Mark Carney said officials may increase their benchmark rate from a record low in spring next year as wage gains accelerate and the recovery gains momentum.

“If interest rates were to follow the path expected by markets — that is, beginning to increase by the spring and thereafter rising very gradually,” inflation would reach the 2 percent target and 1.2 million jobs would have been created, Carney said. “In other words, we would achieve our mandate.”

The BOE governor spoke at the annual Trades Union Conference in Liverpool, where the theme is “Britain needs a pay rise.” While he said official measures of pay pressures are “weak,” there are “some leading indicators that point to a modest pickup over coming quarters.”

With the U.K. economy on track to be the best performing among the Group of Seven this year, Bank of England officials put the labor market and wages at the center of their debate over when to raise rates from 0.5 percent. Martin Weale and Ian McCafferty voted last month for a quarter-point increase in the benchmark, citing concern that wages may be set to accelerate.

While consumer-price growth is now at 1.6 percent and has held below the bank’s goal for seven months, the environment “will not remain benign if we do not increase interest rates prudently as the expansion progresses,” Carney said.

Carney told the unions that “the recovery has exceeded all expectations” and “has momentum.” He said the time to normalize rates is “getting closer” and “you can expect interest rates to begin to increase.”

Rate Bets

Investors have pushed out bets on the timing of the first rate increase after an opinion poll yesterday showed the Yes vote for Scottish independence in the lead for the first time. Futures contracts show the key rate will increase 25 basis points by July, versus bets at the beginning of last month for a move by February.

The Monetary Policy Committee will watch the round of pay negotiations around the start of next year and measures of wages for new hires as potential indicators of “broader pay pressures,” Carney said. For now, there’s enough slack — which the BOE measures at around 1 percent of gross domestic product — in the economy to justify postponing increasing the key rate.

“Across the economy, wage growth is barely above productivity growth,” he said. Unit labor costs “are below the growth rate necessary to meet the inflation target, and indicate that there is further to go before we reach the new sustainable level of employment.”

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Bank of England Governor Mark Carney said officials may increase their benchmark rate from a record low in spring next year as wage gains accelerate and the recovery gains momentum.
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2014-16-09
Tuesday, 09 Sep 2014 07:16 AM
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