22  It is the average of real unit labour costs across firms in the economy that matters for inflation. 8  BIS central bankers’ speeches  need to be mindful of the possibility that it represents part of a longer-term trend towards job polarisation. What matters for inflationary pressures, irrespective of the type of job, is the relationship between wages and productivity, as captured by unit labour costs. Across the economy, wage growth is barely above productivity growth. Unit labour costs are currently soft (growing at only around 1% in the economy as a whole), are below the growth rate necessary to meet the inflation target, and indicate that there is further to go before we reach the new sustainable level of employment. In other words, there is still slack in the labour market that must be used up, and the recent revisions to the profile of UK output up to 2012 seem unlikely to change that assessment materially. That slack is wasteful. And if it were to remain, inflation would remain below the 2% target. The MPC’s current best collective judgement is that, while it has narrowed rapidly, this slack is broadly in the region of 1% of GDP. As this margin of slack continues to narrow, we expect wages to pick up slightly faster than productivity, and unit labour cost growth should increase, consistent with meeting the inflation target. However, the MPC expects it will take the better part of three years for this to happen.
Mark Carney: Prospects for the UK labour market Speech by Mr Mark Carney, Governor of the Bank of England and Chairman of the Financial Stability Board, at the 146th Annual Trades Union Congress, Liverpool, 9 September 2014. *  *  *  President and Congress. It is a pleasure to be in Liverpool today to discuss the prospects for the UK labour market. The growth and distribution of jobs and incomes matter to everyone. Employment does much more than provide the means to support workers and their families; it is essential to personal fulfilment and human dignity. Part of that dignity is being paid a living wage. Over the past year, the Bank of England has ensured that it pays all of its 3,600 staff at least the living wage. And we have recently brought all our contracted service staff in central London up to the London living wage. We are in the process of our final review. But I can announce today the Bank’s intention to become an accredited Living Wage employer by the time of the next TUC conference. Of course, the Bank of England’s responsibilities for promoting the good of the people of the United Kingdom go much further than being a responsible employer. We manage monetary policy to achieve price stability: low, stable and predictable inflation. And we promote financial stability by regulating and supervising financial institutions as well as by taking targeted actions to insure against unsustainable indebtedness, as we did earlier this year for the housing market.