Megan Green joined the MPC last summer and voted to further increase rates to 5.5% before December. Photo: Holly Adams/Bloomberg
It is too early to cut interest rates without more evidence that wage growth and inflation are truly under control, a Bank of England governor has warned.
Megan Green, a member of the Bank's Monetary Policy Committee (MPC), said unemployment was surprisingly low for an economy that had just gone through a recession, while wage growth was still unusually high.
She said: “There is a lot of uncertainty about how much persistent inflation is still in the system compared to how much we have already squeezed out with our contractionary monetary policy.”
“As for me, I would need to see more evidence that inflation is falling in line with my own expectations, and I think that cuts and less restrictive policies will be warranted.”
The MPC, led by Bank Governor Andrew Bailey, raised interest rates from 0.1% in December 2021 to 5.25% in September last year as they battled to bring inflation down.
Economists expect inflation data for April, due next week, to show consumer price inflation has fallen to around the 2% target, down from a peak of 11.1% in October 2022.
< But Ms Green, who joined the MPC last August and voted until December to raise rates further to 5.5%, said the fall in inflation was largely the result of lower energy prices.
They are largely driven by international markets, meaning it is not necessarily an indication that underlying inflation pressures in the UK economy are back under control in the longer term.
Ms Green added: “Accepting Taking into account the possibility of how long we must maintain our contractionary stance before policy has to be eased, I think the burden of proof should be that inflation continues to fall.”
This will include a consideration of wage growth , unemployment and inflation. in the service sector.
Ms. Greene said on Thursday that unemployment remains low despite the recession and wages continue to rise partly due to “labor hoarding” as employers retain staff even when sales are weak.
Other the reason may be that there is an increase in economic inactivity, as people of working age generally drop out of the labor market, do not work and do not look for work.
Since the start of the pandemic, the number of inactive adults has risen by more than 1 million to 9.4 million. This includes 2.8 million people who cited long-term illness as a reason, up 708,000.
Ms Green said: “As workers have left the pool of active job seekers, it has mechanically lowered the unemployment rate. .
“The decline in participation resulted in a decline in the unemployment rate of about 2 percentage points compared to pre-pandemic levels.”
The Recruitment and Employment Confederation (REC) said there were more than 1.7 million job vacancies last month.
That's a drop of more than one-third on April last year, but still means vacancies There are more vacancies than there were pre-Covid, indicating that the labor market remains tight.
At the same time, the European Central Bank warned that indebted governments face challenges posed by high borrowing costs and any future economic or geopolitical shocks.
“High debt levels leave eurozone countries vulnerable to adverse shocks , especially given the structural weaknesses in productivity and potential growth,” the ECB said in its financial stability review.
“Government debt levels in most euro area countries are expected to leave countries with higher infection rates in the short to medium term. pre-pandemic levels.
“More importantly, structural headwinds to potential growth, such as from weak productivity, raise concerns about long-term debt sustainability, making sovereign finances more vulnerable to adverse shocks and increasing risks to financial stability prospects.
The cost of living crisis has rocked British families, forcing them to save an extra £54 billion a year, according to economists at the Resolution Foundation.
Families are saving 6% of their disposable income, a pace not seen in 30 years. except for the quarantine period caused by the pandemic. That's four times more than the 1.5% they typically saved before Covid, according to the think tank.
Prices have risen faster than wages since the start of the pandemic, but families have responded by sharply cutting spending, causing allowed them to save more for a rainy day.
Energy consumption fell by 11% and food purchases by 7%, while the number of household goods purchased such as appliances and cookware fell by almost a fifth.
James Smith, director of research at the Foundation Resolutions, said the experience of the past three years has “transformed us from a nation of spenders to a nation of savers.”
“The scale of this nearly three-year inflation shock has transformed the economy and the public. finance and changed what people do with their money,” he said.
Over the same period, households reduced their debts by £48 billion, or £1,700 per household, the think tank said.< /p>
But increased savings threaten to hurt economic growth in the short term.
Credit and debit card spending fell nearly 8% year-over-year last week to its lowest ever level since September. According to the Office for National Statistics, 2022. This indicates that households are cutting back on spending, which could have painful consequences for retailers.
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