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Wages will struggle to rise, says Assetz

Assetz has warned that the rate rise will scare businesses into low wage negotiations in Q1 2007.

The property investment company has assumed that the surprise rise is an attempt by the Monetary Policy Committee to curb inflation.

Stuart Law, managing director of Assetz, says: The MPC has delivered a warning shot to businesses with this surprising rate rise so early in the year.

As we enter the main wage bargaining period the Bank is shocking businesses into restraining wage rises by increasing their existing costs and showing willingness to raise rates further, thereby helping curb inflation.

This rise is unlikely to be related to house price growth, as this is caused by the imbalance between supply and demand rather then low borrowing costs.

We expect that wage inflation will be kept under control at 4% or less, while inflation is expected to drop back down to 2% by the end of the year.

“This, combined with falling energy prices, confirms that the economy is on an even keel and we are likely to see the Bank holding or lowering rates in the coming months.”

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