A policy maker at the Bank of England (BoE) has said that interest rates will only be cut once they see a slowdown in wage growth.
Monetary Policy Committee (MPC) member, Ben Broadbent has warned that there is still too much uncertainty how the economy is performing before a decision can be made to lower rates.
Average wages are still rising which puts pressure on inflation which is an important indicator for the Bank’s nine-members of the MPC.
Speaking at the London Business School, Broadbent said, “Given the volatility in the official estimates, and the disparity among the various indicators we have, it will probably require a more protracted and clearer decline in these series before the MPC can safely conclude that things are on a firmly downward trend.”
Broadbent added, “We know that firms were accepting significant increases in wages early this year in order to help compensate employees for the steep rises in the cost of living.”
Andrew Bailey the Bank’s governor has previously warned that companies must avoid raising wages above the rate of inflation as the knock-on effect raises prices in the economy.
Broadbent said that companies are still giving staff exceptionally high pay rises to existing staff members, instead of giving a lesser pay rise to new workers, this could be why there has been a significant wage growth in 2023.
He added, “But the slightly muddy picture of the recent past, coupled with the general volatility of the data, means the MPC would probably want to see more evidence, across several indicators, before concluding things are on a clear downward trend.”
Last week the Bank of England held interest rates at 5.25% and the governor Andrew Bailey suggested that cuts are unlikely.
Bailey said there “is still some way to go” as policymakers continue to attempt to bring inflation down further, the bank’s policy is to remain “restrictive for an extended period of time.”
six members of the MPC voted in favour of holding the base rate at 5.25%, but three members wanted to raise interest rates to 5.5%.
Bailey said, “We’ve come a long way this year, and successive rate increases have helped bring inflation down from over 10% in January to 4.6% in October, but there is still some way to go.
“We’ll continue to watch the data closely, and take the decisions necessary to get inflation all the way back to 2%.”