Brexit uncertainty may have made British workers more cautious about their pay demands, which suggests that the economy has more room to grow without pushing up inflation, a top Bank of England official said on Monday.
Deputy Governor Dave Ramsden, who voted against the decision this month by the BoE to raise interest rates for the first time in 10 years, said he had a "somewhat different" view of the economy to most of his colleagues.
While the Monetary Policy Committee overall judged that slack in Britain`s economy was now disappearing, Ramsden said there were signs - such as persistently weak wage growth - that there may be more left to use up.
"I attach some weight to the idea that workers have responded to the changing outlook by showing greater flexibility in their wage demands," Ramsden said in his first speech as a BoE official which was due to be delivered at a Strand Group event at King`s College, London.
He added that this would help explain why measures of domestically generated inflation pressure mostly remain muted.
"If true it would mean there is a little more room than headline measures of slack suggest for the economy to grow without generating above-target inflation in the medium term," Ramsden said.
Most of the BoE`s policymakers expect the steep fall in Britain`s unemployment rate will soon start to push up wages more strongly.
But evidence for a marked pick-up in wage growth remains scant, with households squeezed additionally by the post-Brexit vote rise in inflation.
Last week another BoE deputy governor, Ben Broadbent, said the central bank needed to stick with its assumption that lower unemployment will generate faster inflation, describing spare capacity in the economy as "dwindling".
Ramsden - who was the top economic advisor to Britain`s finance ministry before joining the BoE - said on Monday the biggest risk to the outlook for Britain`s economy was uncertainty about its trading relationships after Brexit, as well as the path followed to reach them.
BoE Governor Mark Carney has previously described the outcome of Brexit talks as probably the biggest factor driving moves in interest rates from now.
(This article has not been edited by Zeebiz editorial team and is auto-generated from an agency feed.)
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