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Return to real wage growth, a quandary for BofE

Jacob Deppe

Obviously, rising wages are a positive thing and a return to real wage growth is welcome as the boost to the Pound clearly demonstrates. Contributor Jacob Deppe, Head of Trading at online trading platform Infinox.

How long it lasts given wage rises are, of course, in themselves inflationary is another matter. While tomorrow’s Consumer Price Inflation (CPI) figure is expected to have fallen again, the fall is forecast to be more muted than last month and there’s a chance that wage rises could mean CPI ticks up again later in the year.

Meanwhile, first quarter GDP figures due next week are unlikely to be that helpful a guide. Most expect GDP to have been no higher than 0.2 percent in the first quarter but that’s largely down to the effect of the very cold weather, so it may not provide a true picture of the overall health of the UK economy.

That leaves the Bank of England’s Monetary Policy Committee (MPC) with a quandary. Does it raise interest rates in May in the belief that wages are rising, the economy is more resilient than first quarter data suggests and that CPI is likely to rise again in the coming months, or stay its hand and wait for more data?

While the MPC isn’t known for taking gambles, the current climate may force it to do so. A May rate hike still seems likely after today, but the Committee might prefer to have to do so with more solid evidence than it will probably have available to it.”

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