Slowdown in earnings gives hope for inflation

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They showed wages rose by 3.8% in the three months to May, down from 3.9% in the three months to April and below the 4%-plus level Threadneedle Street considers a major threat to inflation.

The Bank and its Governor, Mervyn King, are concerned that wage growth will spiral out of control if inf lation expectations continue to rise - triggering a 1970s-style inflation-wage spiral.

Inflation is running at 3.8% - well above the 2% target - but expectations are for it to rise sharply in the coming months. Today's figures suggest this has not passed on to wage growth, despite strikes over pay.

It raised hopes that the Bank's monetary policy committee will not need to raise interest rates to bring inflation under control.

David Page of Investec said: "Pay growth remained tame despite a significant increase in inflation expectations over the period. The MPC will be encouraged that there continues to be no signs of second-round inflation effects to date."