There are also some indications that wage growth is picking up following a fall in unemployment to a 42-year low of 4.3 per cent: “As long as wage growth is improving, policy normalisation is the right thing to do,” said Michelle Lam of TS Lombard.
Michelle Lam, senior economist, TS Lombard I expect the BoE to hike once in next year, probably in August. If wage growth quickens faster than expected, say to 3 per cent in spring 2018, and holds up, the BoE could even raise interest rates twice, beginning from May. As long as wage growth is improving, policy normalisation is the right thing to do. The benefits of keeping policy loose are probably fairly limited. Right now, businesses are holding up capital expenditure because of Brexit uncertainty, not because of tight credit conditions or costs of financing.
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