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Carney signals rate re-think
Updated 1:14pm Thursday 24th July 2014 in Business
BANK of England Governor Mark Carney has signalled a fresh re-think on interest rate policy after shifting the focus for any decision to pay growth.
Latest figures show wage rises running at 0.3 per cent, well below inflation at 1.9 per cent.
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.
He also warned of continuing dangers to the recovery, as risks facing the economy amid public sector austerity, private sector debt, and a soaring pound would take time to fade.
He said: "A key judgment for the Monetary Policy Committee (MPC) is when and to what extent these developments will translate into real wage growth, and in turn that wage growth into price pressures.
"The Inflation Report provides the next opportunity to update our thinking on these important questions."
Mr Carney also reiterated that when rates do start to rise, it will be "gradual and limited".
He added: "This is in part because the headwinds facing the economy are likely to take some time to die down.
"These headwinds include public balance sheet repair, a highly-indebted private sector likely to be particularly sensitive to interest rates, as well as the drag from a 12 per cent appreciation of sterling over the past year and the persistent muted demand from our main export markets."
His focus on wage growth echoed a passage in the newly-released minutes of the latest MPC meeting.
It pointed to the increasing uncertainty over the measure of "slack", adding: "In light of this uncertainty, an argument could be made for putting more stress on the expected path of costs, particularly wages, in assessing inflationary pressures."
The minutes indicated the MPC's nine members were divided over whether an early interest rate hike would derail the recovery - with "striking" weak wage growth leading some to urge caution.
They also showed the committee voted unanimously to keep rates at 0.5 per cent earlier this month.
Policymakers have held interest rates at the historic low for more than five years to nurse the economy back to health from recession.
Earlier this year, Mr Carney exclusively told The Northern Echo rates could increase ahead of the next General Election, but added he wanted to see more jobs created in the North-East before he would intervene.
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