Will Falling Real Incomes Affect the UK Consumer?

Ivan Schwartz
May 19, 2017

The unemployment rate in the period between January and March unexpectedly fell to its lowest level in almost 42 years at 4.6 per cent. Economists polled by Reuters had expected the rate to remain at 4.7 per cent.

At the same time, real wages are decreasing, as average weekly earnings are lagging behind rising inflation.

Pay including bonuses rose at an annual rate of 2.3% in the three months to February, according to the ONS.

Despite the lowest unemployment rate in more than four decades, real wages in the United Kingdom fell at their fastest rate in the first quarter of the year since 2014.

The results mean that pay, adjusted for inflation, fell by 0.2 per cent at the start of the year, the first fall since the end of 2014.

Separately, Wednesday's ONS data provided some relief for employers who have said they are anxious that migrant workers are being discouraged from coming to Britain because of the fall in the value of the pound since the Brexit vote and uncertainty about their future status in the country. Disparity between pay and price growthSuren Thiru, head of economics at the British Chambers of Commerce, commented, "If the disparity between pay and price growth continues to increase as we predict, household spending is likely to slow further, weakening overall economic activity".

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Paul Hollingsworth, UK economist at Capital Economics, said despite the intensifying squeeze on households, the strength of employment was "one reason to be optimistic that the slowdown in spending won't be too severe".

The Bank said in its inflation report last week that inflation would peak at 3 per cent later this year, as the pound's slump causes prices to rise.

The jobless total fell by 53,000 to 1.54 million in the quarter to March, a rate of 4.6%, the lowest since summer 1975. The number was 928,000 in 1997, and the proportion of non-UK nationals rose from 3.5% to 11.1% over the same period.

The rise in inflation rates was believed to have been driven up mostly by the rising airfare prices due to the number of holidays in the past months. The figure fell by 50,000 in the last three months of 2016.

Figures released on Tuesday showed inflation hit 2.7 per cent in April, its highest since September 2013.

'Many have pointed to wage growth as the "missing piece of the puzzle".

Other reports by GizPress

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