BoE says wage growth crucial to 2015 hike

By Dow Jones newswires

The central bank said in its quarterly Inflation Report that annual inflation will stay at roughly 2 per cent over the next two to three years as long as interest rates rise in line with the expectations in financial markets.

Although the unemployment rate fell to 6. 4 per cent for the three months to June, from 6. 5 per cent the previous month, the closely watched wage component disappointed, with average earnings climbing by just 0. 6 per cent compared with the 0. 75 per cent expected.

They also fret that poor income growth means Britons may struggle to cope with higher borrowing costs. "In light of the heightened uncertainty about the current degree of slack, the committee noted the importance of monitoring the expected path of costs, particularly wages, in assessing inflationary pressure," the central bank said in its report.

Average weekly earnings, excluding bonuses, rose just 0. 6 per cent in the three months to June, falling short of the central bank's forecast for growth of 0. 9 per cent.

The BoE reiterated its guidance that future rises in interest rates will be gradual, and that its benchmark rate is unlikely to rise above 2 per cent or 3 per cent for several years.

A rise in the BoE's benchmark rate in early 2015 would likely make the UK central bank the first among its peers to call time on years of crisis-era easy-money policies by lifting rates from historic lows.

Forecasts show the BoE is expecting wages to increase by 1. 25 per cent on average in 2014, a lower forecast than the 2. 5 per cent they were expecting at their last Inflation Report in May.

Read more here: Business Spectator


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