There are two things have helped keep wages and prices in check.

Increasing immigration from Eastern Europe could have the effect of lowering inflationary pressures on wages despite relatively high employment rates.

Add this to cheap prices on imported goods, particularly from China and the other new markets, have kept the lid on High-Street prices despite the strong demand.

Both of these factors may have less significance in the future, if the rate of immigration slows, as the government wants, and if the new markets are forced to revalue its currencies and raise the price of its exports.

The Government may want a slow down on immigration, but is yet to slow down the current levels.  This is without the impending inclusion of new members of the EU.

The Bank of England believes that, in the current uncertain world, it is better to err on the side of caution and raise interest rates.  This it believes is preferable than embed inflation in the system, where it is extremely hard to get rid of later.