Leading MPC rate dove joins hawks over wages

SUSHIL WADHWANI, a prominent interest rate dove on the Monetary Policy Committee (MPC), yesterday surprised the financial markets by turning into a hawk. Speaking at a conference, Mr Wadhwani signalled his concern with rising prices of services and higher real earnings growth.

Reports of his comments at a conference sent interest rate futures lower, with the market pencilling in a level of rates above 6.5 per cent by late next year. The MPC increased rates by a quarter point to 5.5 per cent earlier this month - a move Mr Wadhwani had voted for despite his earlier dovish stance.

He described the trend in services prices signalled by forward looking indicators such as rising price expectations in the British Chambers of Commerce quarterly survey as "quite worrying".

"Although goods prices are displaying signs of deflation and although utilities prices are depressed, inflation in services is still rising at a rather rapid rate and has been climbing in the past few months," he said.

Recent official figures showed services inflation had picked up to 3.9 per cent in October, the highest for almost six years. Goods price inflation fell to 0.4 per cent, the lowest since records began in 1988.

Mr Wadhwani also referred to potential pressures in the jobs market. "One worrying development in the last few months is that on virtually any measure of real earnings growth it has been going up."

The comments were unexpected, but did not convince all analysts to increase the odds on an interest rate rise.

"It is difficult to see any central bank moving in December because of the Y2K constraint, and there will be great uncertainties about the data in the early part of next year," said David Owen, an economist at Dresdner Kleinwort Benson. He predicted there would be a further small increase in March.

In a separate speech yesterday Eddie George, Governor of the Bank of England, said the MPC had been unable to shelter the sectors or regions most exposed to the strong pound for fear of destabilising the whole economy. "We have, of course, taken them into account in reaching our monetary policy decisions," he said.

The Governor said the UK had experienced the longest sustained period of low inflation since the Second World War, combined with the longest period of sustained growth since GDP figures began in 1955, record employment levels and the lowest unemployment for nearly 20 years.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45,000: SThree: SThree Group have been well e...

Ashdown Group: IT Manager / Development Manager - NW London - £58k + 15% bonus

£50000 - £667000 per annum + excellent benefits : Ashdown Group: IT Manager / ...

Recruitment Genius: Sales Consultant / Telemarketer - OTE £20,000

£13000 - £20000 per annum: Recruitment Genius: Scotland's leading life insuran...

Ashdown Group: Training Programme Manager - City, London

£40000 - £45000 per annum + benefits : Ashdown Group: Training Programme Manag...

Day In a Page

Where the spooks get their coffee fix: The busiest Starbucks in the US is also the most secretive

The secret CIA Starbucks

The coffee shop is deep inside the agency's forested Virginia compound
Revealed: How the Establishment closed ranks over fallout from Loch Ness Monster 'sighting'

How the Establishment closed ranks over fallout from Nessie 'sighting'

The Natural History Museum's chief scientist was dismissed for declaring he had found the monster
One million Britons using food banks, according to Trussell Trust

One million Britons using food banks

Huge surge in number of families dependent on emergency food aid
Excavation at Italian cafe to fix rising damp unearths 2,500 years of history in 3,000 amazing objects

2,500 years of history in 3,000 amazing objects

Excavation at Italian cafe to fix rising damp unearths trove
The Hubble Space Telescope's amazing journey, 25 years on

The Hubble Space Telescope's amazing journey 25 years on

The space telescope was seen as a costly flop on its first release
Did Conservative peer Lord Ashcroft quit the House of Lords to become a non-dom?

Did Lord Ashcroft quit the House of Lords to become a non-dom?

A document seen by The Independent shows that a week after he resigned from the Lords he sold 350,000 shares in an American company - netting him $11.2m
Apple's ethnic emojis are being used to make racist comments on social media

Ethnic emojis used in racist comments

They were intended to promote harmony, but have achieved the opposite
Sir Kenneth Branagh interview: 'My bones are in the theatre'

Sir Kenneth Branagh: 'My bones are in the theatre'

The actor-turned-director’s new company will stage five plays from October – including works by Shakespeare and John Osborne
The sloth is now the face (and furry body) of three big advertising campaigns

The sloth is the face of three ad campaigns

Priya Elan discovers why slow and sleepy wins the race for brands in need of a new image
How to run a restaurant: As two newbies discovered, there's more to it than good food

How to run a restaurant

As two newbies discovered, there's more to it than good food
Record Store Day: Remembering an era when buying and selling discs were labours of love

Record Store Day: The vinyl countdown

For Lois Pryce, working in a record shop was a dream job - until the bean counters ruined it
Usher, Mary J Blige and Will.i.am to give free concert as part of the Global Poverty Project

Mary J Blige and Will.i.am to give free concert

The concert in Washington is part of the Global Citizen project, which aims to encourage young people to donate to charity
10 best tote bags

Accessorise with a stylish shopper this spring: 10 best tote bags

We find carriers with room for all your essentials (and a bit more)
Paul Scholes column: I hear Manchester City are closing on Pep Guardiola for next summer – but I'd also love to see Jürgen Klopp managing in England

Paul Scholes column

I hear Manchester City are closing on Pep Guardiola for next summer – but I'd also love to see Jürgen Klopp managing in England
Jessica Ennis-Hill: 'I just want to give it my best shot'

Jessica Ennis-Hill: 'I just want to give it my best shot'

The heptathlete has gone from the toast of the nation to being a sleep-deprived mum - but she’s ready to compete again. She just doesn't know how well she'll do...