February 24, 2015 / 12:05 PM / 4 years ago

Don't use low inflation to curb pay, BoE's Carney urges employers

LONDON, Feb 24 (Reuters) - Bank of England chief Mark Carney urged employers on Tuesday not to take advantage of very low inflation to offer weak wage deals to staff, something he said could derail Britain’s economic recovery.

Carney told British lawmakers the BoE was aiming to bring inflation back to its 2 percent target within two years. Consumer prices rose by a mere 0.3 percent annual rate in January.

“The MPC (Monetary Policy Committee) will conduct policy in order to bring inflation back to target, probably within two years, and that should inform people, particularly as they are forming judgements about appropriate wages,” he said.

The earnings of British workers have started to rise by significantly more than the tumbling inflation rate in recent months, raising expectations that the economic recovery is finally becoming self-sustaining after the financial crisis of 2007-09.

Average weekly earnings rose by 2.1 percent in the three months to December, outstripping inflation by the biggest amount since April 2008, before the financial crisis.

The BoE predicted earlier this month that earnings would rise by an annual 3.5 percent in the final quarter of this year, still a bit below their growth rate before the financial crisis.

On Monday, a British government body recommended a 3 percent rise in the minimum wage, which would take it to 6.70 pounds ($10) an hour, the biggest real-terms increase since 2007.

Carney stressed that risks from low inflation in Britain related mainly to the labour market, not to deferred consumption as occurred in Japan, where deflation became entrenched during its so-called lost decade. (Reporting by David Milliken, writing by William Schomberg Editing by Jeremy Gaunt)

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