BOE needs more hikes as wage growth may hit 4%, says policymaker McCafferty

[LONDON] The Bank of England (BOE) hasn't left it too late to start raising interest rates, even as wage growth may hit 4 per cent next year, according to outgoing policymaker Ian McCafferty.

In an interview with Guardian, published on Thursday, Mr McCafferty said pay could accelerate at a pace not seen since the financial crisis due to labor shortages. On rates, he said there was a need for another two hikes in the next 18 months to two years. The official, who has long been considered one the Monetary Policy Committee's most hawkish members, is due to leave the central bank this month.

Mr McCafferty said that wage growth "might creep up towards 4 per cent-ish" in 2019, from below 3 per cent today and more than the 3.25 per cent forecast by the BOE. He added that the worker shortfall was now moving from skilled occupations into unskilled sectors.

"The labour market has shown significant signs of tightening in recent months," he said. "Surveys and other measures are pointing to labour shortages as a constraint on output growth."

Policymakers raised rates to 0.75 per cent last week, the second increase in the space of the year. In both cases, Mr McCafferty voted for a rate hike before his colleagues.

"I don't think we have left it too late," he said. "But once you think a rate increase is appropriate you shouldn't dally with the first one."

BLOOMBERG