A rate rise by the Bank of England now hinges on wage growth, according to experts.
In the Bank’s Inflation Report last week, governor Mark Carney acknowledged there had been “remarkable weakness” in wages, in spite of the apparently strong growth numbers.
Earnings in 2014 are now only expected to grow by 1.25 per cent instead of 2.5 per cent. This forecast has moved the market’s expectations for the timing of an interest rate rise from December this year to February next.
“Looking forward, wages have trumped the unemployment rate as the most important economic metric to monitor,” Kathleen Brooks, a research director at Forex.com said.
“Even though the BoE stated that it does not have a threshold for wage growth, the development of wages will be important to gauge the timing of the first increase in the Bank rate.”
F&C’s chief economist Steven Bell agreed. He said wage inflation was now “an important clue about when the BoE would start raising rates”.
TwentyFour Asset Management’s Mark Holman added it was “almost impossible” to envisage a rate hike this calendar year.
Kames Capital’s head of multi-asset Scott Jamieson said the BoE was looking for any excuse not to raise rates after Mr Carney said in his speech even if spare capacity in the economy were eliminated overnight, the Bank rate would “not be far from where it is today”.
“‘These folks just don’t want to raise rates,” Mr Jamieson said.
