Weak wage growth could stick, warns central banker

The Bank of England has said it does not intend to raise interest rates until there is a clear prospect of stronger wage growth, and so far the picture remains murky, deputy governor Ben Broadbent told central bankers at an annual conference in Jackson Hole, Wyoming.

Federal Reserve Chair Janet Yellen had also focussed on the complex effects of the financial crisis on the US labour market and policymaking in her speech.

Mr Broadbent said years of low productivity and meagre wage rises since the financial crisis may have reduced workers’ wage demands.

Last week the BoE halved its forecast for wage growth this year to 1.25 per cent, prompting some economists to push back forecasts of when interest rates will rise.

The BoE pencils in a recovery in wage growth to 3.25 per cent next year, a bit below the pre-crisis average of 4.25 per cent.

But Mr Broadbent said that this was not certain.

An economic model he had developedshowed it was possible that “the ‘norm’ of pay growth (had) gradually adjusted to a protracted period of low productivity growth... as people have become more adapted to lower pay awards”.

On the other hand, some data did suggest that wage rises could be coming, he said.

“Some of this weakness could well be unwound later in the year: labour market surveys point to skills difficulties in some areas, and to faster growth in the official earnings series in the months ahead,” he said.