Calls for further rate cut as pay rises slow
Wednesday 03 March 1999
The outline of next week's Budget was sketched to the MPC by the Treasury representative. Some analysts thought this meant that the MPC would wait another month to avoid appearing to prejudge the Chancellor, but others predicted a quarter-point cut in rates at noon today.
Kate Barker, chief economic adviser at the Confederation of British Industry, called for an interest-rate cut of at least another quarter point. This would be the sixth reduction in as many months.
However, the new average earnings figures vindicated the Bank's unpopular decision to raise interest rates last June. Pay growth did pick up sharply in the spring as the original official figures - but not a subsequent revised set - had shown.
The new figures show that the headline rate of earnings, which excludes bonuses, peaked at 5.7 per cent in May - well above the 4.5 per cent limit the Bank considers compatible with its inflation target. But the earnings growth rate fell to 4.2 per cent in December, reveals new Office for National Statistics data.
Mervyn King, Bank Deputy Governor of the Bank , said the MPC had been briefed on the progress of the pay data inquiry "at various stages". However, the committee did not have details of the new figures until Monday.
Patricia Hewitt, the Treasury minister, said: "What we still have to do, and will do, is strengthen arrangements for the integrity and independence of official statistics." A White Paper on greater independence for the ONS will be published by the summer.
Dr Tim Holt, ONS director, who first raised concerns about the figures, said: "In short, we got it wrong and on behalf of the ONS I wish to apologise for that. Errors of judgement were made, but at all times ONS staff acted in good faith."
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