The Deputy head of the Bank of England signaled that he is unlikely to vote for higher interest rates and wage growth remains more moderate than the Bank predicts.
In his speech in Cambria, Jon Cunliffe said that the lack of strong wage growth means that there was a case on “stodginess” or warning before raising interest rates, leaving him in isolation for nine-strong Committee on monetary policy.
The MPC meets next month and is expected to raise the base rate from 0.5% to 0.75% after aggressive interventions, the Bank’s Governor mark Carney and chief economist Andy Haldane. Other members of the Committee expressed their readiness to increase rates.
A survey of city analysts Reuters gave 80% chance of a rate hike in August.
Many high street lenders have raised their lending rates after the growth projections in may, but the MPC stalled progress, stating that the delay was necessary to assess the damage to growth from bad weather in March.
The Cunliffe said: “[warning] policy strategy, the best and thoroughly nourishes and slow healing that I now believe that everything taking”.
He added: “looking at the medium term, it remains the case for a little ‘stodginess else.”
The Cunliffe, one of two members of the monetary Committee who voted against raising rates in November, said that the economy appears to be growing almost as fast as the Bank predicted in may, but wage growth has declined and is not growing at 3% per annum forecast.
He said that the UK, along with many other Western countries, continues to be seriously affected by the financial crisis of 2008, and the aging of the population, which led to a huge accumulation of savings. The growth of savings of the economy are denied vital funds for consumer spending and investment, economists process called “secular stagnation”.
He told Cumbria chamber of Commerce and industry in Kendal, while fears of secular stagnation were probably exaggerated, the economy took a long time to heal. The tightening of monetary policy could harm the healing process.
In the three months to April, unemployment fell by 38000 to 1.42 million to keep the unemployment rate at 4.2%, the lowest since 1975.
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Despite the fall in unemployment, earnings growth, including bonuses, went in the opposite direction, falling 0.1 percentage points to 2.5%, while growth excluding bonuses earnings fell by the same amount to 2.8%.
A new monthly report on UK GDP from the office for National statistics found the economy is running at a faster pace in may than earlier in the year after the increase in the average quarterly growth of 0.1% to 0.3%.
More optimistic, the national Institute of economic and social research said the recovery could continue in the coming months, with forecast growth coming in the three months to June by 0.4%, giving impetus MPC members are interested in raising rates.