BOE's Saunders Expects Revival in UK Wage Growth

By Jason DouglasFeaturesDow Jones Newswires

A top Bank of England official said Wednesday that he expects wage growth to pick up in the U.K. as the country's decision to exit the European Union deters foreign workers from joining the labor force.

Michael Saunders, one of four members of the BOE's nine-strong Monetary Policy Committee drawn from outside the central bank's ranks, said he expects interest rates will need to rise further "over time" to restrain inflation, which in December exceeded the BOE's 2% annual target for the eleventh straight month.

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He said he expects any increases will be gradual and limited, and that monetary policy will continue to provide stimulus to the economy.

In a speech in London, Mr. Saunders said that dwindling immigration to the U.K. from other EU nations means the size of the British workforce won't grow as fast as it has in the recent past.

Such a ready supply of labor had kept a lid on wage growth in Britain, even as unemployment tumbled to record lows, he said in a speech to the Financial intermediary and Broker Association, according to a text of his remarks published by the central bank.

Now that there are signs that EU workers are being put off entering the U.K. by a weak pound and the uncertainty over their future status after Britain leaves the bloc in 2019. As the pool of available workers shrinks, companies will need to increase wages to fill vacancies and attract skilled employees, Mr. Saunders said.

Mr. Saunders said he expects annual pay growth in the U.K. will rise to around 3% this year from around 2.25% currently. He said surveys of firms' hiring intentions and job vacancies point to a further decline in unemployment, possibly to less than 4%.

The BOE raised its benchmark interest rate to 0.5% in November, the first quarter point increase in a decade. Officials signaled they expect to increase the rate to around 1% by the end of 2020.

"If the economy turns out broadly in line with the outlook I have described--labour market tightness and signs of higher pay growth--I consider it likely that interest rates will need to rise further over time. As with other MPC members, I expect that any further tightening will be limited and gradual," Mr. Saunders said.

Write to Jason Douglas at jason.douglas@wsj.com

(END) Dow Jones Newswires

January 17, 2018 06:59 ET (11:59 GMT)