Sterling has slipped below the 1.7 mark against the US dollar again after Bank of England governor Mark Carney said that wage growth had been weaker than the central bank had foreseen.
Mr Carney is being quizzed by Parliament’s Treasury Select Committee, according to FTAdviser sister title FastFT.
He said: “Average weekly earnings was softer than our expectation and adds to a run of hard data that has been softer than expected… Taken together all the data suggest to me that there had been more spare capacity in the labour market than we had thought.”
The UK pound fell 0.3 per cent against the dollar to 1.6977 after Mr Carney began to speak, as investors pared back some of their expectations of rate hikes, which had been ramped up by the central bank governor recently, stating they could come sooner than the market thought.
Short-term gilt yields also edged higher on the comments. Adding to his more dovish stance, Mr Carney said: “We must make sure that the economy absorbs wasteful spare capacity before we start normalising interest rates.
“We have momentum in the economy, it is growing above trend, and forward looking indicators suggesting that will continue. [But] we’re balancing that against some indicators that there was more slack in the economy than we had previously thought.”
Monetary Policy Committee member Charlie Bean said: “Our agents are suggesting that in some areas, where there’s a lack of labour, such as construction... they are being met by selective higher pay awards. They are not widespread enough to have an effect on average higher earnings. But they do suggest there’s some upward movement on pay.”
