BoE's Carney: Rate hike nearing, wage growth weak
The U.K.'s "exceptional" employment performance has come at the cost of salary increases, Bank of England Governor Mark Carney told trade unionists Tuesday.
The central banker explained that although one million more people are in work than there were at the start of the crisis in 2008—wages had fallen by 10 percent in the same period.
The central bank has previously warned any rate hikes would depend on wage recovery.
With this in mind, Carney said on Tuesday that the moment for rising rates was nearing. He said that if the Bank began raising rates in spring 2015, inflation would settle at around 2 percent and a further 1.2 million jobs would be created.
"With many of the conditions for the economy to normalize now met, the point at which interest rates also begin to normalize is getting closer," he said, adding that the precise timing would depend on the data.
"The current inflation environment is benign. But it will not remain benign if we do not increase interest rates prudently as the expansion progresses," he said.
Any rate rises would be gradual and limited.
"Wage growth has been very weak. Adjusted for inflation, wages have fallen by around a tenth since the onset of the crisis," Carney said in a speech, a copy of which was released before he spoke, to the annual Trades Union Congress (TUC) in Liverpool.
"To find such a fall in the past, you would have to look back to the early 1920s."
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The U.K. economy contracted in 2008 and 2009, during the worldwide crisis that followed the collapse and bailout of a number of large financial institutions, and the subsequent sovereign-debt turmoil in Europe.
Unemployment rose in the U.K. during the crisis, peaking at 8 percent in 2011 before slowing waning to 7.5 percent by 2013. It came in at 6.4 percent in the second quarter of this year.
The latest official figures showed a large increase in U.K. employment, and a fall in jobless in the second quarter of 2014. The number of people in employment increased by 167,000 compared with the first three months of the year and the number of unemployed people fell by 132,000.
"The weakness of pay has, in effect, purchased more job creation," said Carney.
He argued that the burden of the "Great Recession" has been shared across the U.K., by both workers and businesses.
"In the U.S., the burden has been much more concentrated on those who have lost, and not regained, work. And in contrast to the U.K., American companies have increased their profits significantly as a share of national income," said Carney.
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The Bank of England's latest forecast suggests real wage growth will resume around the middle of next year. It will then accelerate to a nominal 4 percent over the next three years, with unemployment continuing to fall, to around 5.5 percent.
On the topic of Scottish sovereignty, Carney noted that all three major Westminster parties had ruled out a currency union with an independent Scotland. Scottish residents will vote on September 18 as to whether to remain part of the United Kingdom.
—By CNBC's Katy Barnato