Chart 3: Wage growth compared to MPC forecasts  Chart 4: Unemployment compared to MPC forecasts  Outturn February 2014 IR forecast February 2015 IR forecast February 2016 IR forecast February 2017 IR forecast  6  10 9  4  8  3 7  2 1  6  2019  2018  2017  2016  2015  2014  2013  2012  2011  2010  2009  2008  -1  2007  0  2006  Wage growth (& forecasts)  5  Outturn February 2014 IR forecast February 2015 IR forecast February 2016 IR forecast February 2017 IR forecast  5  Unemployment (& forecasts)  7  -2  2020  2019  2018  2017  2016  2015  2014  2013  2012  2011  2010  2009  2008  2007  -4 Sources: ONS and Bank calculations Notes: Whole economy AWE, total pay. 4  2006  -3  Sources: ONS and Bank calculations Notes: Unemployment rate for 16+ population.
7  All speeches are available online at www.bankofengland.co.uk/speeches  7  My colleague Ben Broadbent has suggested that one effect of the crisis and perhaps of other changes in the world of work and in workers’ perceived pricing power has been to lower or remove that ‘norm’. 15  I suspect changes in workers’ perceived pricing power and perhaps their appetite for risk have been responsible for some of the behaviour of pay and employment post crisis. If this has happened, and I will come onto why it might have done in a moment, the effect could indeed have been to lower the Phillips curve. With one caveat, the policy implications of a lower Phillips curve are the same whether the driver is a lower natural rate, lower/more anchored inflation expectations, or some change in real pay increase norms net of changes in productivity growth. The evolution of unemployment and pay growth will trace the same shape of curve, but pay growth, and hence domestic inflation pressure, will be lower for any given level of unemployment. All else equal the policy maker can therefore tolerate a lower level of unemployment before worrying about domestic inflation pressure in the pipeline. The caveat, and it is a very important one, is that if the Phillips curve has been lowered by the anchoring effect of central bank credibility on inflation expectations, attempting to exploit that change might damage the central bank’s credibility and increase expected inflation, shifting the curve back up again.