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Wages to increase faster than inflation


Wages could begin growing faster than inflation as early as this month, according to economic forecaster EY ITEM Club.

They predicted that average earnings would increase by 1.7% this year, overtaking average inflation forecasts of 1.6% for 2014.

The economic forecaster also predicted that the UK economy will see “decent but unspectacular growth” of 2.9% next year, with the majority of growth being driven by consumer spending.

‘A firmer footing’

EY ITEM Club’s Chief Economic Adviser commented that “the recovery has been financed by a fall in the amount households save, but it appears to be moving to a firmer footing."

He also said: "The consumer upturn will be given a boost from real wages and rising employment, while investment is finally kicking in."

It has been further predicted that inflation will be kept under control due to falling prices of commodities such as petrol, food and energy - driven by the strong pound.

They also expected the Bank of England to keep interest rates at the benchmark low of 0.5% until the third quarter of 2015.

Avoiding a Housing Bubble

However, they did also predict the housing market could slow down as the ‘Mortgage Market Review’ comes into place on April 26th. This will result in tighter criteria being implemented in order to encourage responsible lending.

The new mortgage lending rules set by the Financial Conduct Authority (FCA) mean that borrowers will face stricter checks to ensure they can afford mortgage repayments.

It has been claimed that these rules are “crucial to keeping a lid on the market” and avoiding a housing bubble. This is particularly the case in London where property prices have been rising considerably faster than anywhere else in the country.

Mr Spencer said: "The FCA will assume crucial importance to ensure affordability is scrupulously checked". He said that if correctly implemented, the rules could eventually constrain London house prices, helping to avoid complications when interest rates do eventually increase.

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