U.K. households will have to wait until the second quarter of next year before the squeeze on their living standards starts to properly ease, according to a Bloomberg survey of economists.
Asked when will wage growth begin to outpace inflation on a sustainable basis, 74 percent of 34 analysts said the three months through June or later.
With the U.K. poised for the fastest growth in the Group of Seven this year, Bank of England Governor Mark Carney put weak pay at the center of the case for keeping rates at a record low.
Consumers are still feeling the pinch of a recovery that hasn’t given a fillip to earnings, even as inflation slid to a five-year low and payrolls climbed. Data tomorrow will probably show the unemployment rate fell and workers’ pay continued to lag behind price growth.
The stronger labor market is “not yet feeding through to wages but it can’t be long, so real wages will probably start to grow in the first half of next year,” said Rob Wood, an economist at Berenberg Bank in London. It will be several years before we get back to something approaching normal, it’s going to be a very gradual process.’’
U.K. inflation slowed to 1.5 percent in August from 1.6 percent the previous month, economists said in a separate survey before data today. A labor-market report tomorrow will probably show wages rose an annual 0.5 percent in the three months through July.
Policy Vote
While Carney has put the focus on wages, he’s also said the expectation of sustainable growth may be enough to prompt an increase in the benchmark rate from a record-low 0.5 percent.
The economy grew 0.8 percent in the second quarter and the jobless rate declined to 6.4 percent, the lowest since 2008. Two of the BOE’s nine policy makers voted to raise the rate to 0.75 percent in August, arguing that officials need to preempt potential labor-market pressure.
Carney was among the majority, who said such a move wasn’t yet warranted because the economy is still vulnerable to shocks. The minutes of the September meeting will be published tomorrow.
One uncertainty weighing on the outlook is the Scottish independence referendum, which takes place this week. With polls showing the outcome is too close to call, the risk is that a breakup of the U.K. halts business investment and impedes the recovery.
Those predicting a “no” vote say that once the uncertainty has cleared, the MPC will have a stronger case for lifting rates.
Emergency Rates
“The central scenario is very good and the data warrants an increase,” said Daniel Vernazza, an economist at UniCredit in London.
“Once Scotland is out of the way, we might see regular pay growth tick up over the next few months. These are emergency rates but the economy is not in an emergency state.”
That could weaken Carney’s majority on the MPC as soon as November, the Bloomberg monthly survey shows. Forty-eight percent of respondents said another member of the MPC will join dissenters Martin Weale and Ian McCafferty by then, while 95 percent said it will happen by February.
While the survey doesn’t suggest a rate move is imminent, it adds to the momentum for an increase at the start of next year. Carney said last week that the time to normalize rates is “getting closer” and that consumers should prepare for higher borrowing costs.
“We don’t think anyone else will have found the confidence to break from the pack this month,” said Philip Rush, an economist at Nomura International Plc in London who predicts the first rate increase will come in February. “The next vote for a hike may not come until early next year.”
bloomberg.com
Asked when will wage growth begin to outpace inflation on a sustainable basis, 74 percent of 34 analysts said the three months through June or later.
With the U.K. poised for the fastest growth in the Group of Seven this year, Bank of England Governor Mark Carney put weak pay at the center of the case for keeping rates at a record low.
Consumers are still feeling the pinch of a recovery that hasn’t given a fillip to earnings, even as inflation slid to a five-year low and payrolls climbed. Data tomorrow will probably show the unemployment rate fell and workers’ pay continued to lag behind price growth.
The stronger labor market is “not yet feeding through to wages but it can’t be long, so real wages will probably start to grow in the first half of next year,” said Rob Wood, an economist at Berenberg Bank in London. It will be several years before we get back to something approaching normal, it’s going to be a very gradual process.’’
U.K. inflation slowed to 1.5 percent in August from 1.6 percent the previous month, economists said in a separate survey before data today. A labor-market report tomorrow will probably show wages rose an annual 0.5 percent in the three months through July.
Policy Vote
While Carney has put the focus on wages, he’s also said the expectation of sustainable growth may be enough to prompt an increase in the benchmark rate from a record-low 0.5 percent.
The economy grew 0.8 percent in the second quarter and the jobless rate declined to 6.4 percent, the lowest since 2008. Two of the BOE’s nine policy makers voted to raise the rate to 0.75 percent in August, arguing that officials need to preempt potential labor-market pressure.
Carney was among the majority, who said such a move wasn’t yet warranted because the economy is still vulnerable to shocks. The minutes of the September meeting will be published tomorrow.
One uncertainty weighing on the outlook is the Scottish independence referendum, which takes place this week. With polls showing the outcome is too close to call, the risk is that a breakup of the U.K. halts business investment and impedes the recovery.
Those predicting a “no” vote say that once the uncertainty has cleared, the MPC will have a stronger case for lifting rates.
Emergency Rates
“The central scenario is very good and the data warrants an increase,” said Daniel Vernazza, an economist at UniCredit in London.
“Once Scotland is out of the way, we might see regular pay growth tick up over the next few months. These are emergency rates but the economy is not in an emergency state.”
That could weaken Carney’s majority on the MPC as soon as November, the Bloomberg monthly survey shows. Forty-eight percent of respondents said another member of the MPC will join dissenters Martin Weale and Ian McCafferty by then, while 95 percent said it will happen by February.
While the survey doesn’t suggest a rate move is imminent, it adds to the momentum for an increase at the start of next year. Carney said last week that the time to normalize rates is “getting closer” and that consumers should prepare for higher borrowing costs.
“We don’t think anyone else will have found the confidence to break from the pack this month,” said Philip Rush, an economist at Nomura International Plc in London who predicts the first rate increase will come in February. “The next vote for a hike may not come until early next year.”
bloomberg.com
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