Ian McCafferty, who sits on the Bank’s rate-setting Monetary Policy Committee, started voting for rate hikes in August 2015. He was the only member of the nine-strong committee to do so.
He continued to vote for a 0.25 percentage point hike at every monthly meeting until February 2016, when he joined his MPC colleagues in voting to hold rates at 0.5%, where they have been since March 2009.
Giving a speech at Threadneedle Street, McCafferty said he had dropped his calls for a rise in borrowing costs because he said he had been surprised by the weak rate of pay growth.
He added that he had expected wage growth to pick up against a backdrop of a growing economy and record employment.
McCafferty was also surprised that weak headline inflation – with the consumer price index currently at 0.5% – appeared to be holding back pay.
He said: “Last summer, in voting for an increase in bank rate, I had expected that the narrowing of slack would drive up wages through 2016 as firms competed for increasingly scarce labour. But it now appears that opposing factors are acting to hold wage growth down, for rather longer than I had thought.”
He continued: “It has become increasingly clear to me that the current low level of headline inflation is also having a material impact on the pace of wage growth – and it is this factor that has been paramount in the evolution of my thinking about the balance of risks around domestic cost pressures, and the appropriate policy stance.”
The average UK worker suffered from six years of falling wages in real terms from 2008 as inflation outpaced pay growth. Pay growth has since picked up, but is still below pre-crisis levels and has remained sluggish despite other signs of improvement in the UK jobs market.
The latest official data published on Wednesday showed wage growth excluding bonuses was unchanged in the three months to February at 2.2% compared with a year earlier. Pay including bonuses fell to 1.8% from 2.1% in January.
McCafferty said: “I continue to expect the ongoing process of normalisation to proceed and for the economy to continue to recover, as well as for consumer price inflation to revert to our 2% target.
“But the time over which this is likely to occur has been delayed. This delay, combined with the current dynamic between current inflation and wage determination, has led me to suspend my call for an immediate increase in bank rate.”
Despite his decision to drop his call for rate rises, McCafferty said it was possible that his vote to keep rates on hold might prove “short-lived”.
This article was written by Angela Monaghan, for theguardian.com on Wednesday 20th April 2016 15.25 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010