LONDON: Britain’s slow wage growth is not certain to pick up any time soon, despite signs of skills shortages, Bank of England deputy governor Ben Broadbent said in a speech yesterday.
The BoE 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.
Federal Reserve Chair Janet Yellen had also focused on the complex effects of the financial crisis on the US labour market and policymaking in a speech on Friday.
Broadbent said years of low productivity and meagre wage rises since the financial crisis may have reduced British workers’ wage demands.
Last week the BoE halved its forecast for wage growth this year to 1.25 percent, prompting some economists to push back forecasts of when interest rates will rise.
The BoE pencils in a recovery in wage growth to 3.25 percent next year, a bit below the pre-crisis average of 4.25 percent.
But Broadbent said that this was not certain. An economic model he had developed showed it was possible that “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 did suggest that 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 BoE and the Fed both needed to look at wage and unemployment data as well as growth, he said. This made communicating policy harder, and also meant information about inflation pressure might 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,” he said.
Earlier this month, two BoE policymakers voted to start raising interest rates, judging that a sharp fall in unemployment and strong economic growth was enough evidence that inflationary wage rises could be looming.