Bank of England needs to see ‘clearer decline’ in wage growth before rate cuts

The Bank of England needs to see clearer evidence that wage growth in the UK is slowing before it can think about cutting interest rates, a policymaker has suggested.

Ben Broadbent, a member of the Bank’s nine-member Monetary Policy Committee (MPC) which sets UK interest rates, said there is still a lot of uncertainty around how the economy is performing.

How quickly average wages are rising for workers in Britain is an important indicator for policymakers of whether there is pressure on inflation.

Mr Broadbent said, during a speech at the London Business School, that the MPC needs more certainty over the accuracy of current wage growth data.

“Given the volatility in the official estimates, and the disparity among the various indicators we have, it will probably require a more protracted and clearer decline in these series before the MPC can safely conclude that things are on a firmly downward trend,” he said.

The Bank’s governor, Andrew Bailey, has previously said that firms should avoid raising staff wages above the rate of inflation, because it helps lock higher prices into the economy.

Mr Broadbent said: “We know that firms were accepting significant increases in wages early this year in order to help compensate employees for the steep rises in the cost of living.”

Pay rises being given disproportionately to existing staff, rather than new employees, could explain why wage growth this year has not been in line with forecasts, he said.

“But the slightly muddy picture of the recent past, coupled with the general volatility of the data, means the MPC would probably want to see more evidence, across several indicators, before concluding things are on a clear downward trend.”

The remarks came after policymakers last week voted to keep borrowing costs at a 15-year high of 5.25%.

Mr Bailey has recently stressed that it is “too early” to think about cutting interest rates until the Bank has more evidence that inflation is under control.