BRISTOL, England (Reuters) -Bank of England Chief Economist Huw Pill said labour market data published on Tuesday showed a weakening of pay growth but was still too high to be consistent with the British central bank’s 2% inflation target.
“We did have this morning the latest official data on pay growth in the UK with pay growing at 7.7%. And that’s a little bit off where it was,” Pill said at a discussion about central banks at the Bristol Festival of Economics 2023.
“But actually over the summer pay growth has remained very strong and we certainly wouldn’t see pay growth of that rate as consistent with achieving the 2% inflation target on an ongoing basis.”
Earlier this month the BoE kept interest rates on hold at 5.25% and said they would need to stay at that level for an extended period.
Both the BoE and the consensus of economists polled by Reuters predict a sharp fall in inflation for October when data are published on Wednesday, to 4.8% from 6.7% in September.
Pill said the BoE was watching for a fall to “around 5%”.
“But nonetheless, 5% is still much too high,” he said.
Pill repeated comments made last week that the BoE did not necessarily need to raise interest rates further to restrain inflation but it was prepared to do so if necessary.
The underlying dynamics behind the outlook for inflation were “finely balanced”, Pill said.
“I think the risks are that inflation shows a little bit more persistence than desirable, rather than a little bit less persistence than desirable, and that underpins how I have voted,” he said.
(Reporting by William Schomberg, writing by Andy Bruce; editing by William James)