Sterling hit a five-year low against the dollar on Wednesday after weaker-than-expected UK wage numbers and cautious Bank of England minutes drove investors to push back expectations of when interest rates will rise.

Despite the number of British people in work rising to an all-time high in January, the pace of earnings growth slowed, official data showed.

The Bank of England is keeping a close eye on wages as it considers when to start raising interest rates from their record low of 0.5 per cent.

Minutes from the BoE’s latest monetary policy committee meeting, released at the same time, showed policymakers concerned that sterling could strengthen further and leave inflation below target for longer.

“Both things are signalling that disinflation is a concern and that will likely hold off potential for tightening from the BoE,’’ said Alvin Tan, currency strategist at Societe Generale.

Sterling hit a five-year low of $1.4658 after the release of the minutes and data, down 0.6 per cent on the day, having traded at $1.4760 beforehand.

Against the euro, sterling shed 0.7 per cent to trade at 72.37 pence. But the pound is still close to a seven-year high hit last week against the single currency of 70.145 pence, and on a trade-weighted basis has gained almost 3 percent over the past three months.

“Quite apart from the issue of BoE rate hikes, this concern by the BoE about the currency’s recent strength ... is weighing on sterling,’’ Societe Generale's Tan said.

Market players said a rate hike was now not being priced in until the second quarter of next year and money market pricing for a move was pushed back after the data and minutes.

At 1230 GMT, traders will be watching UK finance minister George Osborne’s budget before May 7 national election in a speech which is likely to focus on Britain’s economic recovery.

But the key event for markets will be a policy statement from the US Federal Reserve later in the day, after the central bank’s latest policy meeting ends.

“All eyes will now be on the Federal Reserve this evening to see whether the weaker economic data and stronger dollar will lead them to signal a delayed time-frame for the first rate hike which is expected in June,’’ said Andy Scott, associate director of FX advisory services at HiFX.

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