Oil price drop buys MPC a bit more time, BoE´s Forbes says

The drop in oil prices gives policymakers in the UK a bit more time before they have to decide whether the labour market is so strong that it requires a rise in Bank Rate, a top official said.

In the text of her speech, published ahead of time by the Bank of England and due to be given on the next day at the Henry Jackson Society, Monetary Policy Committee member Kristin Forbes said the country´s labour market was stronger than what weak headline wage growth suggested.

However, before she voted to hike interest rates she wanted to be more confident that lower unemployment would boost wages in the same way as previous recoveries.

"In the UK, however, wages and labour costs have not yet gained enough momentum to be consistent with inflation reaching our 2% target," she said.

Furthermore, to raise rates today pressupposed that the MPC´s models would work, she said.

"Tightening monetary policy today would require faith that our forecasting models will work and the tightness in labour market quantities and measures of labour market churn will soon translate into stronger wages."

"Unfortunately, [these models] have not been working very well recently" Forbes added.

"The most recent falls in oil prices, by delaying the recovery in inflation, provide the luxury of a bit more time to build this confidence," she said.