Interest rates will not rise this year due to pay growth lagging behind the cost of living, said the Bank of England on Wednesday.

The Bank has slashed its forecast for UK wage growth in half, now expecting the average pay packet to grow by just 1.25%, opposed to the May forecast of £2.5%.

Pay growth in 2015 is forecast at 3.25%, which is only slightly lower than the previous estimate.

Average weekly earnings fell for the first time in five years, according to data released yesterday by the Office for National Statistics, despite unemployment being at a six year low.

Mark Carney, Governor of the Bank of England, said this trend could be explained by a combination of employees not seeking higher pay and a surge in the number of low skilled jobs.

This meant that there was more room for the economy to grow without increasing inflationary pressure, as was first thought would happen.

The Bank believes that wage growth will catch up within the year as the low rates of unemployment make people more confident to ask for a pay rise.

Until then, the Bank will only commit to “gradual and measured” increases to the interest rate, and are in no rush to specify when this will begin.

Analysts say this could further confuse the market. Kathleen Brooks, research director at, told The Telegraph:

“Carney was called an unreliable boyfriend for his switch in tone towards rate hikes, but, in fairness, I would say he is more like a fearful fiancé. He has popped the question (i.e., put the prospect of a rate hike out there), but is yet to commit to a date for the big day.”

Image courtesy of the Bank of England