Bank of England’s Dhingra sees weaker wage growth, lower inflation

By David Milliken

LONDON (Reuters) – Recent labour market data shows a softening economy which is likely to lead to slower wage growth and reduced inflation pressure, Bank of England policymaker Swati Dhingra said on Tuesday.

“Now when the labour market is really loosening … it’s very hard to imagine where further momentum in wage growth is going to come from,” Dhingra said at an event hosted by Britain’s Royal Economic Society.

“We should see some relenting of domestic inflationary pressures,” she added.

Labour market data earlier on Tuesday showed the number of job vacancies dropped to a two-year low while growth in regular pay slowed for the first time since January after hitting a record high of 7.9% in the three months to the end of July.

Dhingra, like BoE Chief Economist Huw Pill on Monday, said the headline wage data gave an exaggerated picture of strength in the labour market.

“Other measures, as well as what is more important – forward-looking measures – seem to be suggesting somewhere in the order of 5% to 6% wage growth,” she said.

Before the COVID-19 pandemic, when inflation was mostly close to its 2% target, wage growth was typically in a 3% to 4% range.

Dhingra – who has consistently voted against rate rises this year – reiterated her view that the BoE would have done better to raise interest rates more slowly.

“A more moderate path of interest rates for a longer period of time would have been preferable because it would allow a much more balanced transmission to firms and to households, and wouldn’t have the sharp peaks and troughs that come with raising interest rates to very high levels,” she said.

Last month the BoE voted to keep rates on hold for the first time since starting its rate-raising cycle in December 2021.