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Loan rate 'will not rise yet'

Slow wage growth will keep the Bank of England from raising interest rates this year despite strong economic data, according to an influential report.

The EY ITEM Club said in its latest survey that although unemployment is at its lowest since 2008 and wage inflation is at its lowest for a decade, it expects rates will not rise until January 2015.

Its chief economic adviser Peter Spencer said: "The markets are jumping the gun in thinking rates will rise this year. Low inflation, the strong pound, and ongoing risks from the eurozone all suggest caution in raising rates."

The report forecasts real incomes "will recover slowly", growing from 1.8 per cent in 2014 to 2.2 per cent in 2016, in contrast with inflation, which jumped to 1.9 per cent from 1.5 per cent last month.

The survey also expects investment in the housing market to rise from 7.6 per cent this year to 13.4 per cent in 2016 as an industry buoyed by measures such as the UK Government's Help to Buy scheme gains confidence.

But the survey said a shortage of housing means house prices will jump 9.1 per cent this year and 7.4 per cent next year, before slowing to 4.2 per cent in 2016.

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