"Until pay growth starts to pick up, the Bank of England will be reluctant to raise interest rates for fear that households will be unable to withstand the higher mortgage costs," says Chris Williamson at Markit.
One reason for the failure of wage inflation to rise is that the excess supply of labour is greater than headline figures suggest. Although there are only 2.12m officially unemployed there are 2.25m who are economically inactive (such as students, the retired and the ill) who would like to work. And there are a further 1.36m people working part-time who'd like a full-time job. On this basis, one in seven of the working age population is unemployed or under-employed.
But Mr Williamson believes official figures might also be under-stating wage growth; he points out that recruitment agencies are reporting rising salaries. James Knightley at ING adds that "pay pressures will gradually increase". Such a prospect is dangerous because labour productivity is falling sharply; official figures show that total hours worked rose 1.4 per cent in March-May, twice as fast as the NIESR's estimate of GDP growth. This means that any wage growth at all would raise unit labour costs and so cause either a rise in inflation or a squeeze on profit margins.
On the other hand, though, low wage growth isn't the only reason for interest rates to stay low for now. Other figures this week showed that raw materials costs have fallen by 4.4 per cent in the past 12 months thanks to the strong pound. Because of this, few economists are worried by this week's news that consumer price inflation rose to 1.9 per cent last month. Fabio Fois at Barclays expects inflation to stay below its 2 per cent target throughout this year and most of next.
For now, most economists believe that the first rate rise will come in November. But the doubts around this timing have increased.
