Source: The Guardian
Ben Broadbent says the ‘norm’ of pay growth may have adjusted to the period of low productivity after the financial crisis.
Britain’s rate of wage growth is not certain to increase any time soon, despite signs of skills shortages, according to Bank of England deputy governor Ben Broadbent.
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 meagre pay 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%, prompting some economists to push back forecasts of when interest rates will rise.
The Bank has pencilled in a recovery in wage growth to 3.25% next year, below the pre-crisis average of 4.25%.
But Broadbent said this was not certain, as it was possible “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 suggests wage rises could be coming, he said. “Some of this weakness could well be unwound later in the year: labour 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 and the US Federal Reserve need to consider wage and unemployment data as well as growth, he said. This makes communicating policy more difficult, and means information about inflation pressure may come too late for central banks to act. “Because the labour market movements apparently take longer to appear, over the cycle, there’s now a trade-off between the accuracy of the information about inflationary pressure and its timeliness,” Broadbent said.
Earlier this month, two Bank policymakers voted in favour of raising interest rates, judging that a sharp fall in unemployment and strong economic growth was sufficient evidence that inflationary wage rises could be looming.