BOE Haldane: Pay Pressures Mounting; Vote For Hike Not Radical

-BOE Haldane: His Vote For A Hike Not Radical Or Surprising; Pay Pressures

Gradually Mounting

By David Robinson

     LONDON (MNI) - Bank Of England Chief Economist Andrew Haldane said that pay

pressures in the UK were gradually mounting, that monetary policy remained

exceptionally accommodative and that in these circumstances his vote for a 25

basis point rate hike at the June meeting was neither radical nor surprising.

     Haldane, speaking at the Academy of Social Sciences, cited a mix of data

and anecdote suggesting that pay growth is picking-up and he said tightening

monetary policy now would help avoid hiking Bank Rate more rapidly at a later

date.

     In June, of the nine Monetary Policy Committee (MPC) members Haldane and

two colleagues, Ian McCafferty and Michael Saunders, voted to hike Bank Rate.

     "I voted to raise Bank Rate by 25 basis points. The aim in doing so was

exactly in line with the May Inflation Report - to reduce modestly the degree of

monetary policy accommodation, given a tight labour market and gradually

mounting pay pressures, to return inflation to target sustainably," Haldane

said.

     A decade after Bank Rate was first put on an emergency setting, following

the global financial crisis, backing a 25bps hike "is hardly either surprising

or radical," he said.

     "A Bank Rate rise of 25 basis points would still leave monetary conditions

in the UK extraordinarily accommodative by any historical metric. And the aim in

doing so is to lower the risk of needing to tighten policy less gradually in

future and cause a sharper adjustment in the economy," he added.

     His comments made clear he is almost sure to back a hike at the August

meeting.

     "We have seen a steady pick-up in annual rates of wage inflation over the

past 18 months, as well as in pay settlements. Private sector regular pay growth

has risen from around 2% this time last year to just shy of 3% currently. And

average pay settlements of around 2% last year have picked up to around 2.5%

this," he said.

     In addition public sector pay in some areas, most notably in the health

service, is picking up and Haldane said employers had told him that they were

more likely to increase pay for existing staff as well, as they had been doing

previously, to attract new recruits.

     He downplayed the slowdown in the first quarter and said that growth was

running around its new, lower trend rate of 1.5% annualised.

--MNI London Bureau; tel: +44 203-586-2223; email: david.robinson@marketnews.com

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