Wages Could Finally Outstrip Inflation

New research suggests that wages could rise by more than inflation for the first time in almost six years this month and that the UK economy will see “decent but unspectacular” growth this year.

The study has been undertaken by a forecasting group, which also predicted that the majority of economic growth will be driven by consumer spending, which will be boosted by average wage increases of 1.7 per cent, overtaking its 1.6 per cent average inflation forecast for this year.

A spokesman for the group said that the recovery so far has been financed by a fall in the amount households save but it appears to be moving to a firmer footing now, as employment rises and investment finally kicks in.

He added that falling petrol, energy and food prices, which have been driven low by a strong pound, will help to keep the cost of living down for a sustained period.

Meanwhile, much weaker demand for materials from China, which imports 40 per cent of the world’s copper, is suppressing commodity prices and quietening inflation.

All these factors have led the group to predict that the Bank of England will leave interest rates at their historic low of 0.5 per cent until the third quarter of 2015 and that, even when they do start to rise, they will do so very gradually.

The group has also forecast that the recent resurgence in the housing market will be offset by tighter mortgage lending criteria due to come in later this month, meaning that the housing bubble feared by some should be averted, even in London.