Why we're all getting poorer

Policy-makers have halved their prediction for wage growth this year from 2.5% to 1.25%, meaning it will continue to lag behind inflation, figures in the Bank's quarterly inflation report showed today.

Official quarterly pay data published shortly ahead of the report were even worse than the Bank had thought, and therefore likely to dampen speculation about an interest rate hike this year.

The Bank's predictions for the wider economy were better, with UK growth figures upgraded from 3.4% to 3.5% for this year, and from 2.9% to 3% for next year.

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Contradictory signals

Unemployment is expected to drop more quickly, falling below a rate of 6% this year, while inflation projections were little changed, hovering just below 2% over the next three years.

The Bank said the key measure of wasteful spare capacity or slack in the economy had narrowed slightly to around 1%, compared to a previous level of around 1.25%.

Slack is the measure that the monetary policy committee (MPC) has said it wants to see narrowed before there can be any rates hike, but there have been contradictory signals about this as real wages fall and jobs grow strongly.

Bank governor Mark Carney said: "In light of the heightened uncertainty about the current degree of slack, the committee will be placing particular importance on the prospective paths for wages and unit labour costs."

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