A policy decision now more balanced
What Martin Weale, a member of the Bank of England's monetary policy committee, described the monthly process undertaken by the committee each month when it considers interest rates and the influence of inflation:
"An analysis of inflation without the labour market would be akin to a performance of Hamlet without the prince – the monetary policy committee has, of course, always paid a great deal of attention to what is happening in the labour market
"I have tried to set out why the policy decision is more balanced than it was some months ago. The balance that I have described is a balance between two opposing forces of uncertain magnitude.
"On the one hand there is my view that measures of underemployment, which contribute to the inflation report view of labour market slack, overstate the underlying amount of spare capacity in the labour market. One factor is that people who have been recently unemployed are less productive than average. If this is the case, then, as the economy continues to grow, unemployment could fall more quickly than the MPC expects.
"That on its own certainly points to a need for a policy profile tighter than in our May forecast. That case is augmented if, as I think likely, the hours gap is less than we assumed in May.
"On the other hand, there is the continuing unusual weakness in wages and a question of what signal should be drawn from that."