The average rate of pay rises in the UK fell to 3.5 per cent in the three months to June, providing a rare glimpse of positive data ahead of the Bank of England's decision on interest rates next week.

The average pay increase declined from 3.6 per cent in the three months to May, suppressed by lower wage rises in the public sector.

In the private sector, average pay deals reached 3.8 per cent, compared with 2.7 per cent in the public sector, according to a study by Income Data Services (IDS).

The slight decline in overall average pay increases will be welcomed by the Bank of England, revealing that spiralling inflation is not filtering through to wages.

Inflation reached a 10-year high of 3.8 per cent in June, nearly double the Government's 2 per cent target, due to rising food and fuel costs.

Yesterday, Centrica, owner of British Gas, announced an unprecedented 35 per cent increase in gas prices and a 9 per cent rise in electricity bills.

The Bank of England's Monetary Policy Committee is meeting next Wednesday and Thursday to decide on whether to keep interest rates on hold at 5 per cent.

Ken Mulkearn at IDS said today: “The gap between private and public sector pay deals looks set to persist, particularly if inflation remains high.

"However, the outlook for affordability may become more important, depending on the wider economic prospect. The range of pay rises, from around 3 per cent to almost 4.5 per cent, shows the variety of outcomes at different organisations."

But civil servants and council workers have already gone on strike over pay deals, and there are fears that more strike action by public sector workers could be on the cards.

Howard Archer, chief UK and European economist at Global Insight, said: "This is welcome news for the Bank of England, which believes that it is absolutely critical that wage growth remains contained if current elevated and rising inflation is to prove temporary."

The Bank fears that if wages increase, they could further push up prices as businesses seek to recoup their higher pay bills, sparking a wage-price spiral that would further fuel inflation.

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