The Bank of England Inflation Report Wednesday signalled no rise in interest rates this year.
Speaking Wednesday, Bank of England (BoE) Governor Mark Carney indicated that interest rates at 0.5% for 5 years are unlikely to rise until next year.
Although the UK economy is growing rapidly and unemployment is falling steadily, the good news is tempered by average pay increases which continue to lag behind the rising cost of living.
The Bank now expects the average wage to rise by 1.12% in 2014, strengthening in 2015 to 3.25%.
This compares with June 2014’s inflation rate of 1.9pc, and the Bank thinks this will stay close to its target rate of 2% for the rest of 2014.
The Governor said earnings growth had been “remarkably weak, even as unemployment has fallen rapidly”.
Saying that the Bank would place “particular importance” on pay rises as to when a decision is made to raise interest rates, he pointed out that this is not the only factor. The Bank thinks that wages will begin to catch up next year, as unemployment falls further and people begin to feel more confident about asking for a rise.
Benefits system changes leading more people into employment and self-employment and state pension age rises leading to concerns about people’s the ability to pay-off debts have encouraged more people to stay in their present jobs, Mr Carney implied.
These trends, and together with a recent increase in the number of low skilled jobs becoming available has reduced average annual wage growth by around 0.5%. Unemployment, is expected to continue falling to below 6pc before the end 2014.