Outlook: Why Bank can feel quietly satisfied

WHEN Tim Holt, director of the Office for National Statistics, apologised yesterday for the fiasco his organisation had made of calculating and revising official figures for average earnings, he would have added an extra, silent message of contrition to the Bank of England. All users expect official statistics to be accurate and reliable, but it is crucial for the Bank's judgement about interest rates.

The reason is that official figures are the only defence against anecdotal evidence, the heavy artillery used by business lobby groups and industry in their attack on the MPC's decisions. Any industrialist or manufacturing union can reel off job losses here and low pay settlements there. The Bank can only set what it thinks will be the right rate for the whole economy by having the full picture, and the only way to get the full picture is to look at comprehensive, national data based on a wide sample, properly weighted and adjusted for seasonal fluctuations.

When the MPC raised interest rates to their peak of 7.5 per cent in June, the official average earnings figures were the last piece of a jigsaw portraying a generally tight labour market. Although not decisive in themselves, they helped tip the balance of argument in the monetary meeting. But the move was so unpopular with the business lobby that there was general rejoicing - and later fury in Threadneedle Street - when the ONS revised the figures to show average earnings growth slowing rather than accelerating in the spring.

The Bank can now feel quietly satisfied that what looks to have been a very thorough review of the average earnings figures has resulted in a series that looks much more like the original picture before the ONS started fiddling with it.

The context is now wholly different, however. Growth has slowed to near standstill, the international backdrop is as depressed as ever, and inflation remains near its target. So although pay is rising at an underlying rate of 4.5 per cent, the Bank's tolerance limit, it does not have the automatic implication that interest rates won't fall again.

In fact, the downward trend in earnings, albeit from a higher than expected peak, encouraged the financial markets to be a bit more hopeful yesterday about the possibility of a rate cut. News about economic activity since last month's MPC meeting has been more upbeat. On the other hand, there remains no sign of inflationary pressure.

The complicating factor this month is next week's Budget. The MPC will already know its broad outline so that it can base its judgement on whatever fiscal stance the Chancellor has decided to adopt. The committee might calculate that if it does cut rates, this will be read as a vote of no- confidence in growth prospects. And if it doesn't cut rates, this might be taken as a sign of a loosening of fiscal policy to come. In these circumstances, the only proper course for the MPC is to ignore how its actions might be interpreted, and simply weigh up all the hard facts - with a bit more confidence in their accuracy after yesterday's review.

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
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

Recruitment Genius: Web Developer - PHP

£16500 - £16640 per annum: Recruitment Genius: This fast growing Finance compa...

Ashdown Group: Client Services Manager - Relationship Management - London

£30000 - £32000 per annum + benefits : Ashdown Group: A highly successful, int...

Recruitment Genius: Credit Controller / Customer Service

£18000 - £20000 per annum: Recruitment Genius: This rapidly expanding business...

Guru Careers: In-House / Internal Recruiter

£25 - 28k + Bonus: Guru Careers: An In-house / Internal Recruiter is needed to...

Day In a Page

Woman who was sent to three Nazi death camps describes how she escaped the gas chamber

Auschwitz liberation 70th anniversary

Woman sent to three Nazi death camps describes surviving gas chamber
DSK, Dodo the Pimp, and the Carlton Hotel

The inside track on France's trial of the year

Dominique Strauss-Kahn, Dodo the Pimp, and the Carlton Hotel:
As provocative now as they ever were

Sarah Kane season

Why her plays are as provocative now as when they were written
Murder of Japanese hostage has grim echoes of a killing in Iraq 11 years ago

Murder of Japanese hostage has grim echoes of another killing

Japanese mood was against what was seen as irresponsible trips to a vicious war zone
Syria crisis: Celebrities call on David Cameron to take more refugees as one young mother tells of torture by Assad regime

Celebrities call on David Cameron to take more Syrian refugees

One young mother tells of torture by Assad regime
The enemy within: People who hear voices in their heads are being encouraged to talk back – with promising results

The enemy within

People who hear voices in their heads are being encouraged to talk back
'In Auschwitz you got used to anything'

'In Auschwitz you got used to anything'

Survivors of the Nazi concentration camp remember its horror, 70 years on
Autumn/winter menswear 2015: The uniforms that make up modern life come to the fore

Autumn/winter menswear 2015

The uniforms that make up modern life come to the fore
'I'm gay, and plan to fight military homophobia'

'I'm gay, and plan to fight military homophobia'

Army general planning to come out
Iraq invasion 2003: The bloody warnings six wise men gave to Tony Blair as he prepared to launch poorly planned campaign

What the six wise men told Tony Blair

Months before the invasion of Iraq in 2003, experts sought to warn the PM about his plans. Here, four of them recall that day
25 years of The Independent on Sunday: The stories, the writers and the changes over the last quarter of a century

25 years of The Independent on Sunday

The stories, the writers and the changes over the last quarter of a century
Homeless Veterans appeal: 'Really caring is a dangerous emotion in this kind of work'

Homeless Veterans appeal

As head of The Soldiers' Charity, Martin Rutledge has to temper compassion with realism. He tells Chris Green how his Army career prepared him
Wu-Tang Clan and The Sexual Objects offer fans a chance to own the only copies of their latest albums

Smash hit go under the hammer

It's nice to pick up a new record once in a while, but the purchasers of two latest releases can go a step further - by buying the only copy
Geeks who rocked the world: Documentary looks back at origins of the computer-games industry

The geeks who rocked the world

A new documentary looks back at origins of the computer-games industry
Belle & Sebastian interview: Stuart Murdoch reveals how the band is taking a new direction

Belle & Sebastian is taking a new direction

Twenty years ago, Belle & Sebastian was a fey indie band from Glasgow. It still is – except today, as prime mover Stuart Murdoch admits, it has a global cult following, from Hollywood to South Korea