The UK’s slow wage growth is not certain to pick up any time soon, despite signs of skills shortages, Bank of England Deputy Governer Ben Broadbent said in a speech on Saturday.
The bank has said it does not intend to raise interest rates until there is a clear prospect of stronger wage growth, and so far the picture remains murky, Broadbent told central bankers at an annual conference in Jackson Hole, Wyoming.
Broadbent said years of low productivity and meager wage rises since the financial crisis may have reduced British workers’ wage demands.
Last week the bank halved its forecast for wage growth this year to 1.25 percent, prompting some economists to push back forecasts of when interest rates would rise.
The bank pencils in a recovery in wage growth to 3.25 percent next year, a bit below the pre-crisis average of 4.25 percent.
However, Broadbent said that this was not certain.
An economic model he had developed showed it was possible that “the ‘norm’ of pay growth [had] gradually adjusted to a protracted period of low productivity growth ... as people have become more adapted to lower pay awards.”
On the other hand, some data did suggest that wage rises could be coming, he said.
“Some of this weakness could well be unwound later in the year: Labor market surveys point to skills difficulties in some areas and to faster growth in the official earnings series in the months ahead,” he said.
The Bank of England and the US Federal Reserve both needed to look at wage and unemployment data as well as growth, he said.
This made communicating policy harder and also meant that information about inflation pressure might come too late for central banks to act.
“Because the labor market movements apparently take longer to appear, over the cycle, there is now a trade-off between the accuracy of the information about inflationary pressure and its timeliness,” he said.
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