In March 2011, MPC dove-in-chief Adam Posen explained to the Guardian why he was concerned about weak demand, and not concerned about a wage/price spiral:
Consumers, he said, were unlikely to run down their savings in an attempt to maintain spending patterns, while the weakness of trade unions meant it would be hard for wage bargainers to push up pay settlements in response to higher inflation.
“Wages will be the dog that doesn’t bark,” he said.
That was an understatement. The Labour Market Statistics covering the three months to January 2012 show that despite CPI peaking above 5% in September 2011, nominal wage rises were muted through 2011. The growth rate of total pay has fallen to a mere 1.4% for the three months to January 2012 vs the same period a year earlier:
These figures are confused by the reclassification of half the British banking system as part of the Public Sector in late 2008, and distorted somewhat from attempts to smooth out the financial sector bonus season through seasonal adjustment. Those bankers do make things complicated.
With that caveat in mind, here are the levels, using the monthly figures now rather than the three-month average to show the downtick over the last quarter:
(The ONS figures for the public sector “ex financial services” show a smaller disparity with the private sector earnings.)
Looking at these figures, it is really hard to believe the MPC came close to tightening monetary policy in early 2011.