18.08.201405:49:50UTC+00Carney: Hikes in interest rates to come before wages

Bank of England (BoE) governor Mark Carney has warned that interest rates may rise before workers’ wages do.

As an indicator of further strain on households, Carney remained open to the possibility for inflation to remain above the rate of wage growth even as borrowing costs in the region, which have been set at 0.5% for the past five years, start to rise. He explained that, "We have to have the confidence that real wages are going to be growing sustainably. We don't have to wait for the fact of that turn to do so.”

Members of the central bank’s Monetary Policy Committee revised down its outlook for the growth of real pay last week from 2.5% to 1.25% despite improvements in the labor market in the form of rising employment. Average real pay is currently forecast to remain on a downward trend until 2015, while inflation is seen to settle at just below the BoE’s target of 2% by year end. The growth rate of wages has consistently fallen below inflation ever since 2008 which has led to an extended period of decreasing real pay and living standards for workers in the UK.

Market participants expect interest rates to be raised near the beginning of 2015 which has fueled the rise of the pound sterling should the BoE be the first major central bank to hike up rates. Policy committee members, however, are believed to not yet be in agreement of when the changes should be scheduled. Carney described the divisive situation by saying, “People might have different views on the exact timing, but it will happen and people should plan accordingly.”

Minutes of the central bank’s latest meeting in August are expected to be released on Wednesday. Nearly half of the economists polled by Reuters predict that it will show at least one policy maker voted towards increasing its rates. If proven true, it would be the first time in three years that the committee has been split regarding the topic.