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BoE tempers rate hike expectations on weak wages

Expectations of a rate rise in the U.K. this year have been dampened by weaker expectations of growth in wages, making a rate hike as early as November less likely.

The bank revised its forecast for wage growth down to -0.25 percent for the year, after figures from the Office for National Statistics (ONS) revealed pay including bonuses for employees in the U.K. was 0.2 percent lower than a year earlier between April and June.

Read MoreBoE eyes wage growth in rate hike riddle

Mark Carney, governor of the Bank of England.
Simon Dawson | Bloomberg | Getty Images
Mark Carney, governor of the Bank of England.

Bank of England Governor Mark Carney said increases in bank rate, when they come are likely to be gradual and limited and MPC expectations on a possible rate rise are "shared by markets."

"The path of bank rates implied implied by market yields and on which this forecast is conditioned, rises by only 15 basis points per quarter and rises only 2.25 percent by the end of the forecast period," Carney said.

"Uncertainty about the sensitivity of the economy to changes in bank rate is another reason why gradual increases may be appropriate," he added.

The governor also warned of the strength in sterling, which he said was a key headwind to the growth of the economy, as the pound is now 14 percent above its trough in March of last year.

The bank upped its forecast for U.K. economic growth to 3.5 percent, from 3.4 percent in May in 2014.

Economists are split on the timing of the first rate rise, but many were open to a move as early as November.

UK unemployment fell once again between April and the end of June, reaching its lowest level since late 2008, but wage growth also slipped, data from the the Office for National Statistics (ONS) showed.

The jobless rate slid to 6.4 percent to 2.08 million unemployed people, a drop of 132,000 people compared to January to March.

Read MoreECB 'won't move a muscle' despite inflation fears

Pay including bonuses for employees in the U.K. was 0.2 percent lower than a year earlier

U.K. unemployment has been falling steadily for the last year and the data marks more good news for the U.K. economy, which is powering ahead, and could lead to more calls for the Bank of England to raise interest rates sooner rather than later.

BoE Governor Mark Carney has said however that the bank wants to see growth in wages before hiking interest rates.

Later on Wednesday, Carney's press conference to discuss the Bank of England's inflation report will be watched closely for any hints on the timing of an interest rate rise.

Analysts at Morgan Stanley expect the Bank's Monetary Policy Committee to remain ambiguous about the timing of the first rate hike

"The August inflation report will likely be ambiguous about whether the first rate hike is more likely to occur later this year or in early 2015, in our view," analysts led by Jonathan Ashworth said.

"We continue to forecast that the first rate hike will be in the first quarter of 2015, although there remains a substantial risk of a move later this year," he added.

Clothes lead UK's record shop price plunge

By CNBC's Jenny Cosgrave: Follow her on Twitter @jenny_cosgrave

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