Weak wages inflation holding back rate hike

THE WEAKNESS of real wages and the generally muted inflation outlook are the major factors holding City A.M’s panel of economic experts from raising interest rates.

For another month, many of the economists we asked for their recommendation on monetary policy noted that there is increasing pressure for an interest rate hike. Business surveys and official figures are suggesting that the recovery is still solid.

However, most do not see any immediate pressure to tighten monetary policy – several mentioned the very modest performance of real wages since the recovery.

Though official figures suggest that real wages have stabilized and may now be rising, the picture is still unclear.

Our shadow monetary policy committee (SMPC) members also noted that generally weaker price pressure could hold off an interest rate hike for longer, with inflation still below the Bank of England’s two per cent target.

The Bank of England’s official monetary policy committee (MPC) announce their own decisions on interest rates this morning, with no change expected.