Britain’s unemployment rate, however, unexpectedly fell to a seven-year low of 5.2 percent in the three months to September. “So I judge it prudent to tread carefully, and refrain from voting for an increase in bank rate until I am convinced that wage growth will be sustained at a level consistent with inflation returning to target”.
Advertisement
She added that once she was convinced, she could see interest rates rising more quickly than implied by markets when the Bank made its last set of quarterly forecasts in November.
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.
“There are many signs that the economy is normalising – the labour market is tightening, consumption growth is solid, investment is recovering, and even productivity growth is showing tentative signs of a return”, Shafik said.
Markets do not expect the Bank of England base rate to climb above 2pc until at least the next decade, while the Bank’s latest Inflation Report in November forecast a rise in real post-tax household income of 2.25pc a year between 2016 and 2018. Total wage growth is calculated as annual growth in seasonally-adjusted average weekly earnings total pay. But the slowdown will worry the MPC, which needs some wage inflation to hit its 2% inflation target in the longer term.
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.
On the outlook for inflation, she said an 18 per cent appreciation of sterling that began in early 2013 had exerted significant downward pressure on inflation, and it would continue to have “some” effect for several years to come. Members voted 8-1 against increasing the Bank’s basic interest by 0.25%.
Analysts believe that the British central bank might be stalling while it waits for the U.S. Federal Reserve to make in the upcoming week, however, the bank’s policymakers were quoted by The Irish Times as having said that their intent is not to match the Federal Reserve’s expected rate hike, noting that “no mechanical link” exists within its logic.
Advertisement
According to the central bank: “The share of households with a very high mortgage DTI ratio (above five) has fallen back since 2012”.
