- Nemat Shafik, BoE Deputy Governor
Productivity in the British labour market rose in all major sectors. This should provide the Bank of England with some relief as an increased productivity coupled with rising wages should limit any significant upward inflationary pressures. UK labour output picked up by 0.6% in the three months through September, the biggest advance in more than three years, although it remains below pre-financial crisis levels, according to the Office for National Statistics. Labour market productivity in the UK, which is measured by output per hour, rose 0.3% compared with the same period in 2013, but it remains 2% below its level in 2008, which is likely to restrain real wage growth. Productivity improved in all of the main sectors of the UK economy in the September quarter, by 0.5% and 0.6% in the production and the service industries, respectively.
The relationship between wage growth and productivity is crucial to inflation forecasting at the BoE. Wage growth, just like production, has been very slow in the last six years. Total pay, which includes bonuses, increased 1.4% in quarter to October while regular pay, excluding bonuses, rose by 1.6%, both above the current level of consumer-price inflation. Low inflation keeps the BoE firmly dovish. For the majority of the Monetary Policy Committee, the outlook for inflation justifies keeping the current level of interest rates.
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