Wages are set to rise even faster than we thought, says Bank

BRITAIN faces another year of impressive growth as low prices and rising wages make families feel richer, the Bank of England said yesterday. The bank now expects weekly wages to increase by 3 per cent this year – up from the 2.5 per cent it forecast just three months ago.

Britain’s economy is predicted to grow by 2.8 per cent, rather than the bank’s forecast of 2.5 per cent in May 2015. This follows an expansion of 3 per cent last year, when the UK was the best performing country among the G7 nations.

In a further boost for households, the bank also slashed its forecasts for inflation – and even predicted another period of deflation this summer.

Bank governor Mark Carney said: ‘The economy is growing and unemployment has fallen substantially over the past two years. Combined with a strong pick up in earnings since the middle of last year, falls in commodity prices have s i gnifi cantly boosted households’ real takehome pay.

‘ In 2015, households’ real income is expected to rise more strongly than in any year since 2007.’ The recovery in living standards marks a dramatic turnaround for families who were left struggling to make ends meet in the wake of the financial crisis.

Living costs have been driven lower by the collapse in the oil price from around $115 (£74) a barrel last summer to $49 (£32).

Presenting the Bank’s latest forecasts at its quarterly inflation report yesterday, Mr Carney said: ‘This is another wel- come sign of the economy returning to normal.’

The rise in sterling has made imports of food and other goods cheaper – which has helped keep a lid on inflation, while British Gas recently announced a five per cent cut in household energy bills.

Mr Carney described the fall in inflation, currently at zero, as ‘the most striking development in the UK in the past year’. And he added Britain may well experience another period of deflation – falling prices – soon, saying: ‘I wouldn’t be surprised if we have another month or two of negative inflation given the very substantial move in oil prices and the changes in utility prices.’

Economic growth is set to slow to 2.6 per cent next year and 2.5 per cent in 2017 – representing another two years of solid expansion. However the bank warned Britain’s dramatic fall in unemployment may be losing steam, as skills shortages make it harder for companies to hire staff.