I won’t vote for rate hikes until wages stren

“The problem for (the Bank’s) hawks is that inflation needs to show more life and, before late Q1, hope for that looks slim”, said Todd Elmer, a strategist with Citi. This flattening of wage growth appears to have poured water on the flames of any potential rate hike, at least from Shafik’s perspective.

But Minouche Shafik, deputy governor for markets and banking and a member of the Monetary Policy Committee which sets rates, added that she will wait for wage growth to increase before voting for an increase.

Shafik saw several possible explanations for wage growth easing off: that the number of hours worked per person per week may have started to decline; that employment growth has been skewed towards lower paid jobs; and that the low level of headline inflation may be leading to less generous pay rises.

“Absent further shocks, I can see bank rate rising more quickly than the path implied by the market curve at the time of the last Inflation Report”, she added.

Investec chief economist Philip Shaw said: “There is a correlation between the rate decisions of the United Kingdom and the U.S. and if the Fed raises rates, it makes it a little more likely that the MPC will raise rates too”.

“There are many signs that the economy is normalising – the labour market is tightening, consumption growth is solid, investment is recovering, and even productivity growth is showing tentative signs of a return”, Shafik said.

In the recent past, banks like Societe Generale and Canada’s RBC Capital Markets have recommended selling sterling, with the French bank predicting the pound may fall as low as $1.30 if voters vote in a referendum to leave the EU.

The British Chambers of Commerce (BCC) warned over the UK’s reliance on consumer spending to drive growth as it downgraded its forecast for gross domestic product (GDP) growth for 2015 and the next two years.

Asked for her response to the Government’s decision to implement a national living wage, Dr Shafik said: “Our estimates are that it will have a modest effect on total wage growth”.

Official figures earlier this week revealed that manufacturing output dropped by 0.4% month-on-month in October – worse than expected and a sharp reversal of the 0.9% rise in September.

Financial markets are now pricing in a United Kingdom rate hike around the end of next year, while economists polled by Reuters mostly expect it to happen by mid-2016. Federal Reserve meeting, widely expected to raise interest rates for the first time in nearly a decade.

Of the MPC’s nine members, only Ian McCafferty has voted to raise rates in recent months. The Bank stressed last week there was no mechanical link between it and other central banks. “Having said that, I think all agents, and all members of the MPC, expect the future path to be gradual and limited”.