Wage inflation is expected to fall as the global credit crunch impacts bonus payments in the financial services sector after British salaries rose above expectations in the three months to August.

The Office for National Statistics (ONS) today reported that UK salaries increased by 3.7 per cent, after a spike in bonus payments in August to workers in financial services, transport and communications.

While growth was above a forecast 3.6 per cent rise, it is still far below the 4.5 per cent benchmark set by the Bank of England and, according to Howard Archer, chief UK and European economist at Global Insight, it could decline as the financial services sector tightens its belt, with the expectation that bankers' bonuses will be cut.

Mr Archer said that at the beginning of this year, in January and February, wage growth stood at 4.9 per cent - above the Bank of England's benchmark - because of the spike in City bonuses. Excluding bonus payments, wages rose by 3.5 per cent in January and 3.6 per cent in February.

Since the beginning of the year, the world's largest investment banks have cut 33,000 jobs. Mr Archer said: "I suspect that bonuses are going to be significantly lower next year."

The ONS also reported today that the unemployment rate during the three months to August was 5.4 per cent, which was flat on the previous quarter but down 0.2 per cent on the same period last year.

With unemployment down, inflation still below the Bank's 2 per cent benchmark at 1.8 per cent and salary growth muted, it is not clear if the Bank of England will be compelled to cut the interest rate in November.

Minutes from the Bank of England's Monetary Policy Committee (MPC) meeting in October show that only one member, David Blanchflower, voted in favour of a rate cut against his eight colleagues.

However, today's minutes show that the crisis in the banking sector prompted the MPC's nine members to seriously consider reducing borrowing costs.

"Credit conditions were expected to tighten and growth prospects for the United Kingdom’s main trading partners had deteriorated," the minutes said, suggesting that a precautionary cut in rates could forestall a sharper slowdown than was forecast in the August Inflation Report.

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