LONDON (Reuters) - The latest fall in oil prices allows the Bank of England “the luxury of a bit more time” before deciding if the job market is tight enough to require an interest rate rise, BoE policymaker Kristin Forbes said in a speech on Monday.
Forbes said Britain’s labour market was stronger than weak headline wage growth suggested. But she wanted more confidence that lower unemployment would lift wages in the same way as previous recoveries before she voted to raise rates.
“Tightening monetary policy today would require faith that our forecasting models will work and the tightness in labour market quantities and measures of labour market churn will soon translate into stronger wages,” she said.
“The most recent falls in oil prices, by delaying the recovery in inflation, provide the luxury of a bit more time to build this confidence,” the U.S. academic added.
The BoE published the text of Forbes’s speech on Monday, and she will deliver it on Tuesday to lawmakers attending a meeting of the Henry Jackson Society, a think tank named after the late anti-communist U.S. senator for Washington.
Forbes said she expected British wages to pick up, despite a slowdown in recent months, in a position similar to that expressed last week by a fellow external member of the BoE’s Monetary Policy Committee, Martin Weale.
Financial markets have pushed back their expectations for the BoE’s first interest rates rise since the financial crisis deep into 2017.
But Forbes said that Britain was not in a much different position to the United States, where the Federal Reserve raised interest rates last month.
“The relatively smooth experience of ‘lift-off’ in the U.S. suggests that, at least in this ‘Tale of Two Cities’, there will not be a revolution,” she said, alluding to the Charles Dickens novel set in revolutionary France.
BoE Governor Mark Carney last week said he would need to see above-average economic growth, a pick-up in labour costs and a move upwards in underlying inflation, and added that the U.S. economy had been in recovery for longer than Britain‘s.
Forbes said she would like to see “a bit more upward momentum” in wages and measures of labour costs before raising rates.
Reporting by David Milliken, editing by Andy Bruce