Bank urged to leave interest rates on hold

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The Independent Online

Britain is experiencing a "two-speed" labour market, according to the latest research from the Recruitment and Employment Confederation and KPMG.

February's REC/KPMG "Report on Jobs" suggests that, while there has been a strong rise in permanent and temporary staff placements in the private sector, especially in IT, engineering and construction, the public sector is shedding jobs further – with nursing, medical and care recruitment "significantly" declining from a year ago.

In more encouraging news for policymakers, however, the REC confirms that wage inflation "remained subdued", suggesting that, as yet, imported inflation and a rise in expectations for future inflation has not fed through into wage rises. The rate of inflation of permanent staff salaries eased to a three-month low in February and remained below long-run averages.

More caution came in PricewaterhouseCoopers' new forecasts, which suggest that the probability of a "double dip" has risen. The accountants say that "underlying domestic inflationary pressures do not appear to be a major concern at present given continued subdued earnings growth. This should allow the Bank of England to avoid rapid rises in base rates, although in our main scenario we expect them to start raising rates gradually later in 2011 and through 2012."

The Bank's Monetary Policy Committee is expected to leave rates on hold tomorrow.

The Office for Budget Responsibility's November 2010 projection for GDP growth of 2.1 per cent in 2011, says PwC, "appears much more reasonable" than the pre-election Treasury forecast of 3 to 3.5 per cent growth in 2011, but is still somewhat above their own figure of 1.2 per cent. House prices have dipped since mid-2010 and "look likely to remain subdued for some time to come".