LONDON: The Bank of England needs to be vigilant about rising labour costs as a tight job market means wages might rise faster than productivity and put upward pressure on inflation, BoE policymaker Jonathan Haskel said on Tuesday.
BoE Governor Andrew Bailey has said interest rates are likely to go up and financial markets see a 90% chance of an increase in December.
Investors were wrong-footed when the BoE opted this month to wait for more job market data before raising borrowing costs.
In a speech to students at the University of Glasgow's Adam Smith Business School, Haskel said much of the recent rise in inflation was due to global factors such as imported goods and energy prices which were likely to drop out of the figures.
He said he was in "team transitory" on the question of inflation's persistence.
BoE eyes first rate rise since 2018 as inflation surges
However, there was a risk that wage growth could exceed productivity growth, which has been weak in Britain for more than a decade.
"The latest data continues to indicate a tight labour market, putting upward pressure on wages. From a living standards point of view, this is of course excellent news, but from an inflation point of view this has to be matched by increased productivity and so we have to be vigilant," he said.
Haskel gave few clues about the short-term outlook for interest rates.
Market expectations of a rise in BoE rates over the coming year reflect a stronger economic outlook than during the depths of the COVID-19 pandemic, he said.
"The prospective rise in Bank Rate from its emergency level - whenever that comes - is not a bug, but a feature. It reflects the success of fiscal, health and science policy in dealing with worst economic shock in 100 years," Haskel said.
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