UK labor data poses dilemma for the BoE - RBS

By FXstreet.com | Updated July 30, 2014 AAA

FXStreet (Łódź) - According to the RBS team of analysts the continued strength displayed by the UK labor market, combined with the considerable squeeze in wage inflation increases the monetary policy dilemma for the BoE.

Key quotes

"Current rates of employment growth suggest underlying conditions are tightening significantly faster than expected – wherever you think the NAIRU is, we are approaching it more quickly than expected."

"The increase in labour supply is not negligible – both as a result of demographic factors and inactivity continuing to fall as retired people return to work and the number of people classified as long-term sick diminishes – but supply continues to trail some way behind demand."

"Yet, headline wage inflation is barely positive in nominal terms, while CPI inflation hovers only a little below target."

"There is no easy answer, but the MPC will need to provide some clearer guidance on how it weighs up these competing influences if it wants to avoid undue volatility in financial markets."

"To date, policymakers have tended to focus on unit wage costs, which have remained fairly benign (output is weak, but wage inflation is weaker)."

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