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| Britain’s Recovery Gains Momentum but Wages Slip | Britain’s Recovery Gains Momentum but Wages Slip |
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| LONDON — The Bank of England on Wednesday raised slightly its forecasts for growth and inflation in Britain, and gave further indications that it was moving closer to gradually increasing its key interest rates if wages improve. | LONDON — The Bank of England on Wednesday raised slightly its forecasts for growth and inflation in Britain, and gave further indications that it was moving closer to gradually increasing its key interest rates if wages improve. |
| The central bank is concerned about slower growth in pay in Britain, as wages including bonuses dipped in the second quarter from a year ago, and it lowered its annual outlook for wage growth this year. | The central bank is concerned about slower growth in pay in Britain, as wages including bonuses dipped in the second quarter from a year ago, and it lowered its annual outlook for wage growth this year. |
| The decline in wages could present a challenge to Britain’s continued recovery, which has outpaced other parts of Europe. The odd cocktail of economic data has also allowed for political posturing less than year before a general election, with the government of Prime Minister David Cameron boasting of the pace of growth and falling unemployment, and the opposition Labour Party focusing on rising prices and stagnant pay. | The decline in wages could present a challenge to Britain’s continued recovery, which has outpaced other parts of Europe. The odd cocktail of economic data has also allowed for political posturing less than year before a general election, with the government of Prime Minister David Cameron boasting of the pace of growth and falling unemployment, and the opposition Labour Party focusing on rising prices and stagnant pay. |
| Mark J. Carney, the governor of the Bank of England, said at a news conference to present the central bank’s quarterly Inflation Report that “conflicting signals in the labor market” were complicating the bank’s efforts to determine whether to raise interest rates. | Mark J. Carney, the governor of the Bank of England, said at a news conference to present the central bank’s quarterly Inflation Report that “conflicting signals in the labor market” were complicating the bank’s efforts to determine whether to raise interest rates. |
| The pound declined sharply against the dollar after the report, as investors expecting a possible rate hike this year had their hopes dashed, analysts said. A rate hike by the Bank of England from the low of 0.5 percent appears more likely early next year, analysts said. The pound was trading at $1.67 on Wednesday afternoon, its lowest level since June. | The pound declined sharply against the dollar after the report, as investors expecting a possible rate hike this year had their hopes dashed, analysts said. A rate hike by the Bank of England from the low of 0.5 percent appears more likely early next year, analysts said. The pound was trading at $1.67 on Wednesday afternoon, its lowest level since June. |
| Mr. Carney said that interest rates “can be expected to increase as the expansion progresses,” but that any increases, “when they come, are likely to be gradual and limited.” | Mr. Carney said that interest rates “can be expected to increase as the expansion progresses,” but that any increases, “when they come, are likely to be gradual and limited.” |
| That expectation appears to be shared by the financial markets, Mr. Carney said. The markets, he said, were projecting a rate of 2.5 percent by the end of the third quarter of 2017. | That expectation appears to be shared by the financial markets, Mr. Carney said. The markets, he said, were projecting a rate of 2.5 percent by the end of the third quarter of 2017. |
| “Small, slow increases in bank rate should help mitigate the risk that higher borrowing costs trigger a sharp slowdown in domestic demand,” he said. | “Small, slow increases in bank rate should help mitigate the risk that higher borrowing costs trigger a sharp slowdown in domestic demand,” he said. |
| In the Inflation Report, the bank predicted that the British economy would grow at an annual pace of 3.5 percent in 2014, slightly faster than the 3.4 percent growth it had forecast in May. For 2015, the bank maintained its estimate of 2.9 percent annual growth. | In the Inflation Report, the bank predicted that the British economy would grow at an annual pace of 3.5 percent in 2014, slightly faster than the 3.4 percent growth it had forecast in May. For 2015, the bank maintained its estimate of 2.9 percent annual growth. |
| The central bank said that it expected inflation to be 1.9 percent by the end of the year, up slightly from its May projection of 1.8 percent, and close to its target of 2 percent. Inflation would remain at slightly lower levels for 2015 and 2016, the bank said. Annual inflation reached 1.9 percent at the end of June, up from 1.5 percent in May, according to the most recent British data. | The central bank said that it expected inflation to be 1.9 percent by the end of the year, up slightly from its May projection of 1.8 percent, and close to its target of 2 percent. Inflation would remain at slightly lower levels for 2015 and 2016, the bank said. Annual inflation reached 1.9 percent at the end of June, up from 1.5 percent in May, according to the most recent British data. |
| “Today’s report comes across as a solid signal that the majority of BoE rate setters are planning to wait until next year before hiking rates,” Robert Wood, an economist at Berenberg Bank, wrote in a research note. Berenberg had previously predicted that the central bank’s next rate increases could come as early as November. | “Today’s report comes across as a solid signal that the majority of BoE rate setters are planning to wait until next year before hiking rates,” Robert Wood, an economist at Berenberg Bank, wrote in a research note. Berenberg had previously predicted that the central bank’s next rate increases could come as early as November. |
| Samuel Tombs, an economist at the research firm Capital Economics, said that the inflation rate had not eliminated the possibility of a rate hike this year, but that it indicated the central bank’s Monetary Policy Committee was likely to “raise rates at a more measured pace than currently anticipated by the markets over the coming years.” | Samuel Tombs, an economist at the research firm Capital Economics, said that the inflation rate had not eliminated the possibility of a rate hike this year, but that it indicated the central bank’s Monetary Policy Committee was likely to “raise rates at a more measured pace than currently anticipated by the markets over the coming years.” |
| Separately on Wednesday, the Office for National Statistics reported that Britain’s unemployment rate dipped to 6.4 percent in the second quarter, the lowest level since late 2008. | Separately on Wednesday, the Office for National Statistics reported that Britain’s unemployment rate dipped to 6.4 percent in the second quarter, the lowest level since late 2008. |
| However, pay including bonuses for the quarter was 0.2 percent lower than in the period a year earlier. Excluding bonuses, average pay in Britain was up 0.6 percent from the second quarter of 2013, which means wage growth has not kept pace with increases in prices of goods and services. | However, pay including bonuses for the quarter was 0.2 percent lower than in the period a year earlier. Excluding bonuses, average pay in Britain was up 0.6 percent from the second quarter of 2013, which means wage growth has not kept pace with increases in prices of goods and services. |
| In 2013, bonus payments in Britain spiked in the second quarter as a number of businesses delayed payments normally made during the first quarter in order to allow their employees to take advantage of a lower tax rate. | In 2013, bonus payments in Britain spiked in the second quarter as a number of businesses delayed payments normally made during the first quarter in order to allow their employees to take advantage of a lower tax rate. |
| The central bank now expects wages to grow by 1.25 percent in 2014, down from its May estimate of 2.5 percent growth for the year. | The central bank now expects wages to grow by 1.25 percent in 2014, down from its May estimate of 2.5 percent growth for the year. |
| Mr. Carney also expressed concerns about subdued productivity growth. The Bank of England is projecting productivity — a measure of gross domestic product per hour worked — to increase by about 0.25 percent this year and by 1.75 percent in 2016. The average increase was 2.5 percent between 1998 and 2007. | Mr. Carney also expressed concerns about subdued productivity growth. The Bank of England is projecting productivity — a measure of gross domestic product per hour worked — to increase by about 0.25 percent this year and by 1.75 percent in 2016. The average increase was 2.5 percent between 1998 and 2007. |
| Mr. Carney said that a “sustained expansion here at home will ultimately require growth in productivity and real incomes, both of which have disappointed.” | Mr. Carney said that a “sustained expansion here at home will ultimately require growth in productivity and real incomes, both of which have disappointed.” |
| The bank expects unemployment to fall to below 6 percent by the end of the year. Earlier this year, as employment increased faster than expected, the Bank of England backed away from its plan to consider raising key lending rates as soon as unemployment fell below 7 percent. | The bank expects unemployment to fall to below 6 percent by the end of the year. Earlier this year, as employment increased faster than expected, the Bank of England backed away from its plan to consider raising key lending rates as soon as unemployment fell below 7 percent. |
| In the second quarter, the number of people employed in Britain increased to 30.6 million, driven in part by a jump of nearly 10 percent in the number of people who identified themselves as self-employed. The number of people working increased by 167,000 from the end of March. | In the second quarter, the number of people employed in Britain increased to 30.6 million, driven in part by a jump of nearly 10 percent in the number of people who identified themselves as self-employed. The number of people working increased by 167,000 from the end of March. |
| Ian Duncan Smith, the secretary of state for work and pensions, called Wednesday’s figures “quite remarkable.” Focusing on the fall in unemployment, he said being in a secure job was the best hope for people to see their incomes rise in future. “Your salary can’t rise,” he said, “if you’re not in work.” | |
| Stephen Timms, the Labour shadow employment minister, said that while the decline in unemployment is welcome, “it’s extremely worrying that the figures have shown pay falling far behind inflation and the change in regular pay being the lowest on record.” | |
| “For Ian Duncan Smith to claim that people are ‘better off ' in the face of these figures shows just how out of touch this Tory-led government is,” Mr. Timms said. | |
| The theme that the average Briton is still feeling squeezed resonates with voters. But polls suggest that Ed Miliband, the Labour leader and likely challenger for Mr. Cameron’s job, has so far struggled to persuade voters that he is a better guardian of the economy than Mr. Cameron. | |
| Mr. Wood, the economist from Berenberg, wrote that a decline in unemployment coupled with weak productivity could prompt the Bank of England to begin to raise rates this year if wage growth increased: “The Inflation Report signals that wage growth would not need to pick up very much in order to justify a hike.” | Mr. Wood, the economist from Berenberg, wrote that a decline in unemployment coupled with weak productivity could prompt the Bank of England to begin to raise rates this year if wage growth increased: “The Inflation Report signals that wage growth would not need to pick up very much in order to justify a hike.” |
| Mr. Carney said there had been a little more energy than expected from the British economy. | Mr. Carney said there had been a little more energy than expected from the British economy. |
| “This is an expansion, which has momentum,” he said, “and we expect it to continue.” | “This is an expansion, which has momentum,” he said, “and we expect it to continue.” |