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Mark Carney's inflation fight hits close to home
June 2, 2017 / 11:21 AM / 6 months ago

Mark Carney's inflation fight hits close to home

LONDON (Reuters Breakingviews) - A British lawmaker once compared Mark Carney to an unreliable boyfriend due to his changing guidance about the direction of interest rates. The Bank of England governor is showing greater consistency when it comes to fighting UK inflation. Some support staff at the central bank are threatening to strike over a 1 percent pay rise. The award mirrors the economy-wide squeeze in incomes that hits the least well-off the hardest. But it would be odd for Carney to undermine his efforts to keep prices in check.

City workers walk past the Bank of England in the City of London, Britain, March 29, 2016. REUTERS/Toby Melville/File Photo

The sharp fall in sterling following Britain’s 2016 vote to leave the European Union has made imported goods more expensive and lifted the inflation rate to 2.7 percent. The central bank predicted in May that price rises have nearly peaked, but expects inflation to remain slightly above its 2 percent target as far out as 2020.

So far, most UK rate-setters have looked past the spike in prices and voted to keep policy rates at a record low of 0.25 percent. But they might reconsider if wage increases were to pick up, since that would risk entrenching higher inflation.

Despite unemployment falling to 4.6 percent, the lowest level in more than four decades, there’s little sign that workers are exercising greater clout. Pay excluding bonuses rose 2.1 percent in the first three months of 2017 compared with the same period a year earlier, according to the national statistics office. Public sector wages rose even less because of a government cap.

The central bank is independent and not obliged to comply with that limit. But as a public institution, it prefers to follow state guidelines. Carney has set an example when it comes to wage restraint: he has declined to take a pay rise since taking the job in 2013 on an annual salary of 480,000 pounds. Little consolation to service staff, some of whom are paid less than a twentieth as much. But consistency, if not charity, starts at home at the Bank of England.

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