BoE’s Broadbent not surprised at push back on interest rate forecasts

A combination of rising economic growth and falling unemployment had been considered the main contributing factors in the Bank’s inevitable decision to raise interest rates.

Carney, however, warned of the threat posed by China’s indebtedness to the global economy and another Bank’s deputy, Minouche Shafik, recently said that the world was still vulnerable to another financial crisis.

Broadbent said that unit labour costs – how much a business pays its staff to produce one unit – must rise before the central bank can hit its inflation target of two per cent. Ian McCaffery was the only Monetary Policy Committee member who voted in favour of a rate increase.

At the Bank’s last meeting, eight out of nine policymakers voted for the base rate to stay at 0.5 per cent and the Old Lady said they were closely watching the situation in Asia and China for clues on the health of the global economy. He said the euro zone was doing better than in 2014.

“The case for a rate hike early in the new year is alive and kicking”, Alan Clarke, a market strategist at Scotiabank, said.

British inflation has been near zero for the past six months, due to a drop in commodity prices and a strong currency.

Broadbent, one of four BoE deputy governors, said a possible explanation for why wages have failed to grow over the past years is that companies have increasingly employed low-skilled staff.

In the past year the number of foreign nationals working in Britain rose by 294,000 to reach 3.09 million, reports the Daily Express, with recent figures showing that one in ten of the workforce now comes from overseas (just over three times what it was in 1997 when the last Labour government took office).

While Mr Broadbent highlighted that there were signs of slower United Kingdom growth, including “some tailing off” of manufacturing activity, he said progress in the United Kingdom remained impressive. “But broadly speaking… the kind of growth rates we are getting even in [the third and fourth quarter] are pretty stellar compared with what I experienced in my first couple of years on the Monetary Policy Committee”, he told the news agency.

He showed little appetite for a change to the BoE’s tools or inflation-fighting mandate, as suggested by opposition Labour Party leader Jeremy Corbyn under the guise of “People’s Quantitative Easing”.