Rates only likely to rise when wages pick up again

“There has not been much news” whispers the Bank of England in the latest minutes of the Monetary Policy Committee.

You don’t say. For the umpteenth month in a row (I’ve stopped counting, it was beginning to seem rude) the policymakers have decided to keep interest rates at 0.5 per cent.

To be fair, this isn’t a surprise: none of the economists polled in recent days by Reuters expected there to be a rate hike.

There was much discussion recently about whether the Bank was signalling the next move is in fact more than a year away (a common interpretation last month when the Bank published its detailed Inflation Report); yet this was rapidly contradicted in a speech by the deputy governor, Ben Broadbent, who warned against reading too much into market data.

Look at the economics, he urged.

While the broad picture at home and abroad is little-changed since last month, the minutes today point to a marked fall in oil prices – meaning inflation will “remain subdued” - and a levelling off in wage growth.

Pay remains “central to the Committee’s policy assessment” - in other words, only once wages start to show sustained growth will the Bank be minded to think about putting interest rates up.

“There would need to be a sustained firming in domestic cost pressure, compared with their current rates, in order to return inflation to the 2 per cent target in around two years’ time,” something which the policymakers obviously can’t yet see.

The current pause in pay growth is a puzzle which the Bank intends to return to in February (and indeed most companies don’t decide on pay until towards the end of the financial year in March).

Giving the Bank’s first verdict on the Chancellor’s Autumn Statement and the Spending Review, the Bank notes the “slightly slower pace of deficit reduction in 2016 than was previously planned, [ie a bit less austerity early on] “although the fiscal consolidation will continue to weigh on growth over the forecast period,” [austerity will still slow the economy as the cuts bite]. The minutes also highlight the 3 percentage point increase on stamp duty for second homes which they say will bring forward some sales before the changes are introduced and then dampen activity later.

In sum, a report of a meeting which states there is no news isn’t going to be earth shattering.

It seems pretty ‘doveish,’ meaning there is no immediate pressure to put up rates – and it points us to wages as the key thing to watch.