Wages Growing Slower than Expected

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The Office for National Statistics said average annual pay growth crept up to 4.4 percent in the three months to April from 4.2 percent in the prior three months.

That was the highest in a year, but less than analysts' forecasts for 4.5 percent.

April is a key month for pay deals, and the lower-than-expected reading will reassure the Bank of England that wages remain under control despite surging energy costs, and should bolster the case for rates to stay on hold at 4.5 percent for the time being.

Short sterling rate futures briefly rose after the figures but quickly returned to pre-data levels as investors sat tight ahead of key U.S. inflation data due later.

"Average earnings growth was reasonably modest. It's not above the 4.5 percent level which the BoE thinks is consistent with maintaining CPI inflation on the target rate," said Peter Dixon, economist at Commerzbank.

"As far as the BoE is concerned it doesn't really clarify anything. The situation remains fluid and it is too early for the Bank to consider rate hikes on the back of what is going on in the market place."

Excluding bonuses, annual pay growth slowed to 3.8 percent from an upwardly revised 3.9 in the previous three months.

And in a sign that Chancellor Gordon Brown's tough talk on public sector wages may be taking effect, pay growth for these workers slowed to its weakest in 3-1/2 years.

However wages in the private sector picked up sharply to 4.5 percent, the highest in over a year. Annual pay growth in manufacturing accelerated to 5.3 percent, the highest in over six years, mainly due to higher bonuses.

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