Bank of England Governor Mark Carney announced today (13 August) that the Bank is halving its forecast for average wage growth, saying it now expects average salaries to rise by only 1.25 per cent this year.
Despite this, the Governor spoke of the UK economy as being “on track” and exhibiting “robust growth” that has taken output above the pre-crisis peak, which is why the Bank has revised its near-term forecast for growth up.
Mr Carney made his announcement as part of the Bank’s Quarterly Inflation Report just after official data revealed that average wages in the UK suffered a year-on-year fall in the second quarter of this year, growing by only 0.6 per cent, the slowest pace of growth since records began in 2001.
However, the Bank upgraded its growth forecast for this year to 3.5 per cent from 3.4 per cent, and for 2015 it forecast growth of 3 per cent, up from 2.9 per cent. In addition, its latest quarterly economic forecast indicated that it believed the level of spare capacity in the UK economy has narrowed to around 1 per cent of gross domestic product (GDP).
Speaking of interest rates, Mr Carney said that there were still a number of uncertainties to contend with, including record employment, “remarkably weak” wage rises and threats to the global economy but said that when rates do increase they would still do so gradually.
It is now assumed that the Bank will raise interest rates in February next year, three months earlier than when it published its last forecasts in May. If this happens, the UK would become the first major economy to raise interest rates since the end of the financial crisis.