Inflation is expected to remain close to its mandated upper limit as slack in the labour market disappears fast than expected, the Bank of England’s Inflation Report has warned.

The Bank slashed its wage growth forecast from 2.5% to 1.25% however, and said that the persistent strength of sterling was concerning, sending the pound tumbling 0.45% against the dollar.  

‘The [Monetary Policy] Committee has revised up its estimate of medium-term equilibrium labour force participation and revised down that for unemployment,’ said the Bank.

Inflation is expected to remain close to its mandated upper limit as slack in the labour market disappears fast than expected, the Bank of England’s Inflation Report has warned.

The Bank slashed its wage growth forecast from 2.5% to 1.25% however, and said that the persistent strength of sterling was concerning, sending the pound tumbling 0.45% against the dollar.  

‘The [Monetary Policy] Committee has revised up its estimate of medium-term equilibrium labour force participation and revised down that for unemployment,’ said the Bank.

‘Domestically, output is sensitive to the assumption that a gradual revival in productivity and real household incomes help to underpin a sustained expansion.

‘Productivity growth has shown few signs yet of a recovery and is now projected to pick up more slowly than anticipated in May.’

Currency markets have having taken their cue from the UK labour report issued simultaneously, which showed the headline rate of wage growth actually over the three months.

Including bonuses wage growth fell to a fresh record low of just 0.6% in June said the Office for National Statistics.