Wages Rise, Unemployment falls again....

Generali

HAMISH_MCTAVISH wrote: »

http://www.bbc.co.uk/news/business-33162403

With CPI at just 0.1%, wages are now rising 2.6% above inflation per year, which is not bad actually by historical terms.

:beer:

Great news.

FWIW, you'd expect real wages to increase at a 2-2.5% pa so I reckon this is right at the very top end of normal.

HAMISH_MCTAVISH

mwpt wrote: »

Go on then, educate me. 0.5% was called emergency, but now it's normal?

I think you misunderstand the role of interest rates in monetary policy.

You can't pick an arbitrary number and call it 'normal'.

caronoel

The number 23 is normal

mwpt

I disagree. I think that rates this low signify an economy not strong enough to grow by normal productivity rather than high levels of debt. You can define the argument on the semantics of normal if you like but my original question was why someone would be pleased that pressure is off to raise rates.

My guess is that someone is highly leveraged and reliant on low rates.

Generali

HAMISH_MCTAVISH wrote: »

I think you misunderstand the role of interest rates in monetary policy.

You can't pick an arbitrary number and call it 'normal'.

Normal interest rates:

Average since the BoE was founded ~5%
Traditional 'neutral' monetary policy ~inflation + 1-2%

However, debts are a lot higher than has traditionally been the case which probably makes the economy's sensitivity to interest rates much higher than 'normal' so a smaller increase in interest rates is likely to have a greater impact than traditionally. Also, an aging population means a search for low risk income bearing products. That should keep market interest rates lower than is normally the case (sorry boomers: those sweet pension deals you've got might not be quite as sweet as the green-eyed Gen Yers think).

michaels

Finally the labour market is tightening enough to start nudging up wages, note that this is at an unemployment rate 1.5% lower than Carney predicted in his first forward guidance. The reason as we all know is that the labour force was able to expand a lot more than expected as revealled by the unprecidented 'number employed' figures.

Part of the reason for this is that the 'pool' of available workers turned out not to just be those in the UK but huge numbers of unemployed from accross Europe. This is where the belated QE driven pickup in Europe comes in - could improved conditions and improved expectations in Eur have reduced the supply of labour to the uk market and led to wage pressures increasing? It is not as if we can blame cpi plus benchmarking for wage increases...

And the 64 million dollar question, what does this mean for the UK base rate. Given that the energy price reduction looks like a one off that will start to drop out of the cpi over the coming months (or even reverse slightly) inflation increases may come in in the top half of the BOE fan and thus the pressure to raise interest rates may ramp up more quickly than central market projections. I would not rule out an increase this year and possibly several in the first half of next year - 2.5% base rate in 15 months time?!

IronWolf

The problem with keeping rates at 0% and pumping the economy full of QE is that you have no monetary options left should another recession happen.

Meanwhile you get high asset prices and disincentives to save leaving ordinary people generally in a worse off position should another crisis hit.

Im pretty skeptical tbh that monetary policy has any real impact on the economy. We have been trying to boost the economy with loose monetary policy since 2001 and where has it got us? It led to people seeking yield first in Mortgage backed assets, which then led to the financial crisis as the banks fed these yield seekers with trash, and we now see people seeking yield in junk bonds, equities, and property. At some point that will probably blow up as well.

wotsthat

Arguments about whether the base rate is an indicator of a rubbish, booming or middling economy will be shown to be moot when the FED decides to raise their rate because we'll follow shortly after.

Interest rates just are.

michaels

People save in order to defer consumption from the current time period to the future, in genral due to aging and the understanding that the ability to provide labour for income will diminish beyond a certain age.

It would thus be possible to construct an argument that lower interest on savings would actually lead to more savings as, although the relative benefit of deferring consumption is reduced by the lower returns, the same low returns actually mean that more must be saved in order to reach a desired level of income in future.

wotsthat

mwpt wrote: »

I disagree. I think that rates this low signify an economy not strong enough to grow by normal productivity rather than high levels of debt. You can define the argument on the semantics of normal if you like but my original question was why someone would be pleased that pressure is off to raise rates.

My guess is that someone is highly leveraged and reliant on low rates.

Maybe they'd rather their children had lower mortgage payments than receive higher interest on their own savings.

Someone needs to think about the children.