2018.01.1707:29:00UTC+00BoE's Saunders Says Pay Growth To Rise This Year

The tightening labor market and rising recruitment difficulties is set to lift pay growth this year a bit above the recent subdued trends, Bank of England policymaker Michael Saunders said Wednesday.

According to Saunders, the labor market is likely to tighten more this year than markets anticipate and the equilibrium jobless rate is lower than it used to be.

Even so, he said the elevated level of labor shortages across a wide range of industries suggests there is no longer significant labor market slack.

The banker said the jobless rate is likely to drop to, and perhaps even below 4 percent during 2018, alongside further declines in under-employment.

Further, tightening of the labor market is likely to cause underlying pay growth to pick up to around 3 percent this year and probably a little higher next year, Saunders added.

If the economy turns out broadly in line with the outlook, it is likely that interest rates will need to rise further over time, he said. Nonetheless, any further rate hike will be limited and gradual.

A modest further increase in rates would still imply a shift towards neutral, rather than an outright move to a restrictive policy stance, he noted.

But the path of monetary policy is not present, he added.

"Balancing out the positives and negatives, the near-term outlook for the economy is not great, but nor is it terrible," said Saunders.