Weak wage growth may reflect temporary Brexit caution: BoE’s Forbes

LONDON: Recent weakness in British pay growth likely reflects temporary caution about Brexit among employers, Bank of England (BoE) rate-setter Kristin Forbes said in a newspaper opinion piece published on Thursday.
Minutes from this month’s policy decision said the most recent data on wages had been “notably weaker” than been expected, but Forbes suggested a rebound may be in the offing.
“Although wage growth has been disappointing, this likely reflects temporary caution around Brexit,” Forbes said in an article written for the Daily Telegraph.
Official data on Wednesday showed pay growth, adjusted for inflation, halved to just 0.7 percent, the lowest since October 2014, which was shortly before inflation plunged to just below zero and made it easier for households to cope with slow pay growth.
But inflation is now rising again quickly, pushed up by the post-Brexit slump in the value of the pound.
Forbes, an American academic who is due to leave the BoE in June, was the only member of the nine-strong Monetary Policy Committee (MPC) to vote in favor of raising interest rates this month — the first split between policymakers on rates since last July.
The other eight MPC members all opted to keep the bank rate at a record low of 0.25 percent to help the economy as Britain prepares to leave the EU.
The majority of MPC members flagged signs of slowing consumer spending as one reason for caution on interest rates, but Forbes said this should be seen in the context of strong rates of consumption recently.
“This softening ... should only be moderate, due to support from resilient consumer confidence, solid house prices, low unemployment, and easy access to cheap credit,” she said.
“There are risks consumers could pull back more sharply — but these are still just risks.”