Newspaper article The Journal (Newcastle, England)

Slow Wage Growth to Stall Interest Rates Rise

Newspaper article The Journal (Newcastle, England)

Slow Wage Growth to Stall Interest Rates Rise

Article excerpt

Byline: Roger Baird

SLOW wage growth will keep the Bank of England from raising interest rates this year despite a run of strong economic data, according to an influential report.

The EY ITEM Club said in its latest quarterly survey that despite unemployment falling to its lowest level since 2008 and wage inflation at its lowest for a decade, it expects rates will not rise until the first quarter of next year.

Its chief economic adviser, Peter Spencer, said: "The markets are jumping the gun in thinking that rates will rise this year. Low inflation, the strong pound, and ongoing risks from the eurozone, all suggest caution in raising rates."

The report forecasts that real incomes "will recover slowly" growing from 1.8% in 2014 to 2.2% in 2016. This contrasts with inflation which unexpectedly jumped to 1.9% from 1.5% last month.

The survey also expects investment in the housing market to rise from 7.6% this year to 13.4% in 2016 as an industry buoyed by measures such as the government's Help to Buy gains confi-dence.

But because of a shortage of housing stock the report estimates house prices will jump 9.1% this year, 7.4% next year, before slowing to 4.2% in 2016.

Mr Spencer added: "Investment in our housing stock is much lower than it needs to be in order to put a roof over the head of the UK's growing population."

However, the survey forecasts that UK economy will grow faster this year than any country in the G7 pool of developed nations.

The report said the UK will grow by 3.1% this year, driven by business investment rather than consumer spending as has been the case up to now.

This compares with GDP growth forecasts this year of 1.8% for Germany and 2% for Canada.

The spur of this growth in the UK will be capital spending by business, which is set to jump by 12. …

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