Wages set to rise next year – but so will prices
(17 November 2005)

In its November 2005 inflation report out today, the Bank of England recognised wage inflation as the crucial factor determining inflation in the next two years, not energy prices.

Jonathan Said, economist at the cebr think tank, explained the Bank's apparent thinking that wage inflation, rather than energy prices, will play a key role in future manoeuvrings.

He said: "It sees the risk that the 2005 energy-driven inflation bout will feed into wages next year, raising consumer price inflation and also unemployment. If this were the case, then we would not be able to rely on rising unemployment to justify an easing of inflationary worries, and hence an interest rate cut."

Some other analysts believed that the bank has overstated the possibility of economic growth prospects and may thus be forced to make a rate cut early next year. The Bank of England's quarterly inflation report has sparked speculation that it will continue to sit tight and hold rates at 4.5 per cent, especially as inflation is said to have experienced its first drop for 15 months in October – a fall of 0.2 per cent.

A cash advance could be the ideal way to take advantage of the low inflation and hence low prices we are experiencing at the moment. If all the signs are pointing towards a tough 2006, now could be the right time to pick up some bargains.



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