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Carney's 2016 BOE policy view awaited as wage growth slows
[LONDON] Mark Carney is set to share his thoughts on the outlook for the first time this year, the same week as a slew of data gives fresh insight into prospects for prices and policy.
Weaker pay growth may offer the Bank of England governor some vindication after officials left their benchmark interest rate at a record low this month. Reports on employment, wages, inflation and retail sales will help shed light on the economy's performance, while Mr Carney and Monetary Policy Committee member Gertjan Vlieghe are due to give speeches.
The MPC was already on a cautious footing at the end of 2015, and recent market turmoil, concern about the health of China's economy and a fresh slump in oil have reinforced that view. The International Monetary Fund will update its global forecasts on Tuesday after a tumultuous start to the year that prompted economists and investors to push back bets on the timing of a BOE rate increase.
"Carney may give color on the financial-market disruptions and what that means and on the oil-price shock," said Phil Rush, an economist at Nomura International in London. "Wage growth is likely to tick down further, and that keeps the pressure to hike off the MPC." The picture at home also isn't helping the case for the benchmark UK rate to be increased from 0.5 per cent, where it's been for almost seven years. In addition to weaker wage growth, surveys show the UK's upcoming referendum on whether to remain part of the European Union is weighing on confidence.
In their assessment last week, BOE officials said Brent crude's decline to a 12-year low was likely to weigh on inflation, and they cut their near-term forecast. Consumer prices probably rose an annual 0.2 per cent in December, according to a Bloomberg survey before data on Tuesday. That would be the fastest since January 2015, but still far below the BOE's 2 per cent target.
Mr Carney is set to deliver a lecture at noon the same day at the School of Economics and Finance at Queen Mary University in London, before traveling to Davos for the annual meeting of the World Economic Forum. His remarks will be closely watched for clues into his thinking on the evolution of prices. Vlieghe speaks on demographics at the London School of Economics at 6:30 pm on Monday.
The pound rose against the dollar and was trading at US$1.4295 as of 8:17 am London time, up 0.3 per cent since Friday.
Inflation isn't set to pickup any time soon. In its 2016 outlook, published Monday, EY ITEM Club predicted the headline rate will remain below 0.5 per cent until the middle of the year and won't reach 1 percent until the final quarter. That will make it "difficult" for the MPC to increase the key rate until late in the year, it said.
At the same time, data in the labor market, which officials have put at the center of policy, has suggested a cooling in recent months. Deputy Governor Minouche Shafik has said she's waiting for wages to accelerate relative to productivity before voting for a lift off in interest rates. A report on Wednesday is forecast to show regular pay rose an annual 1.8 per cent in November, the weakest since January.
While there is nervousness about the global outlook, the U.K. economy is still growing and the unemployment rate is at the lowest in more than seven years. According to Samuel Tombs of Pantheon Macroeconomics, markets have gone "too far" in expecting rates to remain on hold for another year.
"The earnings figures are key," he said. Mr Carney may "suggest that he intends to raise rates sooner provided the labor market continues to tighten." -With assistance from Harumi Ichikura.