At 5.5%, the unemployment rate is getting close to past estimates of its ‘natural rate’, i.e. the rate at which further falls become incompatible with the inflation target. Indeed, the stronger labour market is why MPC member Martin Weale this week said he is on the brink of voting for a rate hike. But there are reasons to think that the natural rate may be lower than in the past. Even if it is not, there is other slack in the labour market which will contain the recent acceleration in wage growth.
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