Print Edition - 2017-09-14 | MONEY
Squeeze on UK households continues
Sep 14, 2017-In spite of what looks like a buoyant labor market, household incomes in Britain are being squeezed by a combination of weak wage growth and high inflation that is expected to prevent the Bank of England from raising interest rates imminently.
Whatever, if any, rise in pay growth takes place in August, it’s clear that inflation is outstripping wages—figures published Tuesday showed that the headline consumer price inflation rate spiked to 2.9 percent in the year to August. The squeeze may appear curious given that Britain’s unemployment fell to 4.3 percent, its lowest level since 1975, as employment increased by 181,000 in the three months to July. That in theory should be pushing wages higher as workers gain bargaining power.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said a sharp fall in consumer confidence “suggests that job-to-job moves will remain well below the pre-recession levels required to drive up overall wages gains.”
Overall pay growth may get a bit of a boost from the government’s decision to abandon a pay cap for public sector workers in England and Wales. The government has limited public sector pay rises to 1 percent since 2010 in an attempt to reduce the government budget deficit in the wake of the global financial crisis. For now, the squeeze in household income is one of the main reasons why most economists think the Bank of England will keep its benchmark interest rate unchanged at the record low of 0.25 percent on Thursday, even though inflation is markedly above its 2 percent target. The other considerations expected to stay the hand of a majority on the central bank’s nine-member Monetary Policy Committee are uncertainty over Britain’s exit from the European Union and the inflation-induced slowdown in consumer spending, both of which are largely behind the country’s slowdown in growth this year. So far this year, Britain is the slowest-growing economy among the Group of Seven industrial nations.
Published: 14-09-2017 07:05