This flattening of wage growth appears to have poured water on the flames of any potential rate hike, at least from Shafik’s perspective.
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Wages were not growing strongly enough yet to merit a hike in Bank Rate but financial markets were nevertheless pricing in the first increase too far into the future, a top Bank of England rate-setter said.
But the chances of Threadneedle Street following suit anytime soon receded as the Office for National Statistics recorded a sharp slide in wage growth – closely watched by the Bank’s Monetary Policy Committee – to 2% in the quarter to October.
He also said he was “married” to the BoE’s 2 percent inflation target, and that he would not follow through on expectations of rate rises if that was the wrong thing to do.
There are many signs that the economy is normalizing – the labour market is tightening, consumption growth is solid, investment is recovering, and even productivity growth is showing tentative signs of a return.
‘And although the downward pressure on inflation from movements in energy prices and the exchange rate are proving persistent, they will not have a permanent effect on inflation’.
Mark Carney, the Bank’s Governor, has said that policymakers remain ready to introduce further measures to constrain lending, including curbs on buy-to-let lending. But the slowdown will worry the MPC, which needs some wage inflation to hit its 2% inflation target in the longer term.
Britons have improved their finances over the past year and are in a better position to withstand interest-rate increases, the Bank of England said in its Quarterly Bulletin yesterday.
One of the biggest advantages of tax free bonds are that they offer the ability to eliminate reinvestment risk, as they allow investors to lock into interest rates for a long period of 10, 15 or 20 years, and also have a secondary market in case there is a need for liquidity. Ms. Shafik said Monday she expects the recent strength of sterling to act as a drag on inflation for some time to come.
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“There is nothing in the recent MPC meeting minutes to suggest that a rate rise is any closer”. The Reserve Bank of India, has made inflation targeting its central focus, and thus a sustained effort has been made to bring down the rates of inflation. “Having said that, I think all agents, and all members of the MPC, expect the future path to be gradual and limited”. But its decision came as the US Federal Reserve is poised later this week to make its first interest rate increase in almost a decade, while monetary policy in Europe is moving in the opposite direction.
