Two Bank of England (BoE) policymakers, Martin Weale and Ian McCafferty, are expected to have voted again for a rate hike in September, the same as they did in August. The rest of the nine-member Monetary Policy Committee (MPC) voted to leave policy unchanged for now, the MPC meeting minutes are expected to reveal on Wednesday.
Regarding the path of the bank rate, BoE Governor Mark Carney said last week the time of the first rate hike was coming closer and said the market curve implied that rates were set to begin rising by Spring 2015.
"Our latest forecasts show that, if interest rates were to follow the path expected by markets – that is, beginning to increase by the spring and thereafter rising very gradually, inflation would settle at around 2% by the end of the forecast and a further 1.2 million jobs would have been created," Carney said in a speech in Liverpool on September 9.
The MPC may be unanimous again if Scotland votes for independence on Thursday and volatility and uncertainty sweep across the markets. When speaking before the Treasury Select Committee (TSC) on September 10, Weale, who is considered as the one of the most hawkish members at the MPC, hinted he might change his mind in October in the event the Scots opt for independence.
"I will do what I always do when I vote whether to keep interest rates unchanged or not and that is to look at the data that we have and the way I interpret them and, obviously, something that we will know at the October meeting that we don’t know now is the outcome of the Scottish referendum," Weale said.
Apart from the Scottish independence referendum frenzy, policymakers have been focusing all their attention on the BoE's most fundamental remit and that is the inflation and price pressures influencing its medium-term outlook. Comments from top policymakers clearly show watching the wage growth has been on the top of its agenda.
So far, wages have been significantly weak, with those excluding bonuses rising only 0.6% - the lowest ever recorded and far below inflation. The Office for National Statistics (ONS) is releasing new labor market data on Wednesday morning, coinciding with the MPC minutes release. Both sets of data are expected to increase volatility.
Governor Carney said last week in Liverpool that the current wage pressures were now as low as if the unemployment rate were around 10%, not the 6.4% it actually is today. But he also added that "there are some leading indicators that point to a modest pick-up over coming quarters."
"As employment approaches its new higher level, wage pressures should increase and capital investment should continue to recover. Productivity growth should pick up bringing the higher, sustainable pay rises," Carney said and added that the MPC expects it to take the better part of three years for this to happen.
Two dissenters at the MPC, Weale and McCafferty, argued in August that wage growth might lag behind the rest of the labor market data. If that was true, they said, "wages might not start to rise until spare capacity in the labour market were fully used up … And since monetary policy, too, could be expected to operate only with a lag, it was desirable to anticipate labour market pressures by raising Bank Rate in advance of them."
It will therefore be essential for the BoE watchers to keep an eye on the labor market data through the rest of the year to see indications for a short-term policy outlook. "Wages are the one missing ingredient for a rate hike. That gives the BoE room to wait before hiking rates. Tomorrow’s labour market data, and those data through the winter, will therefore be key to the interest rate outlook," Berenberg Bank UK chief economist Robert Wood wrote in a note on Tuesday.
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