One of the Bank of England’s most dovish rate-setters has decided that signs of firmer wage growth mean interest rates need to rise more quickly, according to comments reported today.
Sir Dave Ramsden, the Bank’s deputy governor, said that “relative to where I was, I see the case for rates rising somewhat sooner rather than somewhat later”, in an interview with the Sunday Times.
Ramsden’s intervention is the latest sign that the Bank is preparing markets to raise interest rates before November this year, after governor Mark Carney said at the start of the month that market pricing was lagging behind data.
Ramsden joined the monetary policy committee (MPC) in September, and was one of only two rebels on the nine-member panel to vote against the first rate hike in a decade at the start of November. Yet the turnaround in his assessment of the monetary policy trade-off marks yet another sign the Bank will hike interest rates in May.
Last week the Bank’s chief economist, Andy Haldane, said wage data in the coming months is “key” to the interest rate path, and that pay will break an annual rate of three per cent in the first quarter.
“There does seem to me more impetus on wages,” Ramsden said, adding he will “keep a close eye on what happens through the early part of this year”.
However, he also said that productivity continues to lag, dragging down the UK economy’s potential growth rate, with the Brexit process a “reinforcing” influence.
“The economy has a lower speed limit than it did,” Ramsden said. “We already had a productivity growth puzzle, but Brexit has reinforced things.”
Slower wage growth also has a “Brexit element”, he added, although he believes the UK remains an attractive place to do business.
“The UK has a global comparative advantage in things such as foreign exchange and derivatives, and this will reinforce people’s desire to trade in London,” he said. “We have to keep working at the offer we’re making in London.”