Shameless Hypocrisy and UK Monetary Policy
Dr. Martin Weale is concerned about market sector Unit Labour Costs. OK. Here is what happened to market sector Unit Labour Costs going in to Summer 2011:
They have just tipped out of outright deflation. To be fair, this is current data; possibly the Bank had data saying something different back in 2011. But let’s presume that if Dr. Martin Weale was looking at even vaguely similar data, he must have been arguing for looser monetary policy at the time? Here’s what he was saying in June 2011:
I have, of course, been pleasantly surprised that wage settlements in the private sector have remained low and that private sector regular weekly earnings are rising by less than 2 1⁄2 per cent per annum.
(Yes, Dr. Weale! Like you, people all round the country are celebrating their low pay rises! Hooray for low pay rises, they say! Hooray, hooray! He continues…)
But a more general picture of unit domestic costs excluding taxes can be obtained by looking at the gross value added deflator. This rose by 1 per cent in the first quarter of the year and by 2.4 per cent compared with the first quarter of 2010. So it is consistent with the view that, even after excluding import costs and taxes, there are at present substantial cost pressures in the economy.
Can you see what he’s done there? He did not mention unit labour costs! In 2011, the GVA deflator was a good reason to… well, what did Dr. Martin Weale want to do in 2011? Just check the title of the spech: “Why the Bank Rate should increase now“.
Coming back to 2012, Unit Labour Costs have been rising, and what is happening to the GVA deflator? It rose just 1.2% in the four quarters to 2012 Q4 and has been below 2% for most of the last four years. So is that a “substantial” level of cost pressure, Dr. Weale, or a “pathetically weak” level of cost pressure? What would you say? Or do you in fact cherry-pick the statistics which fit your narrative and ignore the rest?
[Update: I meant to note that the GVA deflator reading which Weale mentioned, of 2.4% over the four quarters to 2011Q1, has since been revised down to 1.0%.]
I am honestly disgusted by this. This is not policy. This is not how the UK’s most powerful technocrats should behave, lurching from arbitrary decision to arbitrary decision. We deserve much, much better than this. Re-appointing the hawks to the MPC is looking like a catastrophically bad decision, absent a tighter (less discretionary) policy mandate to keep them on a tight leash.