UK interest rates “will have to rise” if Britain’s jobs market remains buoyant, according to a Bank of England policymaker.
Jonathan Haskel, one of nine members of the Bank’s Monetary Policy Committee (MPC), said rate-setters would have to remain “vigilant” on rising wages and the wider jobs market as the UK faces the highest inflation for a decade.
In a speech at the University of Glasgow’s Adam Smith Business School, he said that much of the current cost of living pressures were out of the Bank’s control, though they should only be temporary.
But he stressed concerns that wage growth could exceed productivity in the UK and contribute to an inflation spiral.
He said: “Much of the current inflation is due to outside forces such as energy prices, but the labour market is tight and we have to be vigilant.
“In my view, if the labour market stays tight, Bank Rate will have to rise.”
He said while more official data on unemployment was needed before deciding whether to act on rates, the signs so far “suggest that the labour market is buoyant”.
“The latest data continues to indicate a tight labour market, putting upward pressure on wages,” he said.
“From a living standards point of view, this is of course excellent news, but from an inflation point of view this has to be matched by increased productivity and so we have to be vigilant.”
The next set of jobs figures are due from the Office for National Statistics on December 14 – just two days before the Bank’s next rates decision.
The Bank surprised financial markets by holding off from hiking rates earlier this month, but governor Andrew Bailey said a raise will be needed “in the coming months”.
Investors on financial markets see a 90% chance that rates will rise at the December 16 decision.
Mr Haskel was one of the seven MPC members that voted to hold rates at 0.1% in November and wait and see how the jobs market and economy was faring before pressing the button on a rise.
In his speech, he said that higher interest rates should be seen as a good sign for the health of the UK economy.
He said: “The prospective rise in Bank Rate from its emergency level – whenever that comes – is not a bug, but a feature.
“It reflects the success of fiscal, health and science policy in dealing with worst economic shock in 100 years.”