MPC to be on hold for a while as equilibrium jobless rate shifts lower, Citi says

The equilibrium rate of unemployment - that which does not stoke undue wage pressures - was lower than had been thought, making it that much more likely that the Bank of England could be on hold for a while, economists at Citi said at the start of the week.

On the basis of "recent evidence", the broker argued that the equilibrium jobless rate had probably declined below the Monetary Policy Committee´s estimate of 5.1%.

Indeed, despite unemployment having already hit that level "there is no sign that pay growth is about to pick up sharply," Citi economists Michael Saunders and Ann O´Kelly said in a research report sent to clients.

Among the factors which were probably behind that shift lower were: the rising participation rate in the UK, high inward migration (especially of EU nationals), tax and benefit reforms, lower inflation expectations and the shift to more flexible work patterns, they said.

In their opinion, all of the above reinforced "the prospect that the MPC will be on hold for a while."