British workers may be willing to accept lower wages in the wake of the Brexit vote, according to the newest member of the Bank of England’s Monetary Policy Committee.
Sir Dave Ramsden joined the MPC in September and was in a minority of two on the nine person committee in voting to keep interest rates on hold at 0.25 per cent earlier this month.
In a speech at King’s College London on Monday, Sir Dave, who was previously chief economic advisor to the Treasury, suggested that since the Brexit vote British workers may have responded to the uncertainties about the economic outlook by “showing even more flexibility in their wage demands”.
“The idea that workers are responding to Brexit by showing increased flexibility could mean that there is more room than headline measures of slack suggest for the economy to grow without generating above-target inflation in the medium term,” he said.
“The weakness in real wage growth, and the subdued nature of domestically generated inflation mean I am not yet ready to discount the idea that labour market flexibility is continuing to intensify”.
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The most recent official wage data showed a nominal increase in average pay of just 2.2 per cent in the three months to September.
The inflation rate, however, was steady at 3 per cent in October, with some City analysts suggesting it might have peaked.
The view of most of the rest of the members of the MPC is that there is now no more slack left in the UK economy and that wage growth will shortly start to rise, accelerating to an annual rate of 3 per cent next year.
The Bank’s Governor, Mark Carney, has said that without at least two further rate hikes by 2020, UK inflation will likely remain above the Bank’s official 2 per cent target over the forecast horizon.
The Bank’s interest rate hike earlier this month was the first increase in the cost of borrowing since 2007.