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Wednesday, October 13, 1999 Published at 17:27 GMT 18:27 UK

Business: The Economy

Chancellor warns against pay rises

Rising wages may prompt the Bank of England to increase rates

Chancellor Gordon Brown has cautioned workers not to demand large pay rises, as a jump in wages heightens inflation fears.

Average earnings were up 4.9% on the year to September. That compared to the year to August when earnings rose 4.6%.

Chancellor Gordon Brown said: "I am warning people ... that we have to be careful - this is a cautionary warning for us that we can't go back to the old ways and we are certainly not going to relax our efforts. We are not going back to the 1980s."

With the jobless rate at the lowest levels for nearly 20 years, there have been fears that wages may be forced up by the falling numbers of available employees.

If this was to happen the Bank of England would be expected to raise interest rates to cool down the economy in order to avoid a rise in inflation.

The rising wages makes an interest rate increase next month more likely as the Bank of England has said 4.5% earnings growth is the maximum consistent with its 2.5% inflation target.

The instant reaction from the City was mixed, with the earnings increase offset by the fall in the unemployment figure being lower than expected.

Employment minister Tessa Jowell welcomed the figures, but added: "We have to underline the importance of pay moderation in both the public and private sector.

"The increase in average earnings is a trend we intend to monitor closely. Our aim is to ensure that the jobs that are available are filled by people that are skilled to take them."

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