Brexit: Are Living Standards Getting Worse?
Unfortunately, yes. With a weaker pound, rising prices and no wage growth, living standards are falling in the UK, according to labour market data from the Office for National Statistics (ONS).
Despite that UK labour market data for April have shown that more people are employed, and unemployment rate is down from 5.1% to 4.7%, economists are expecting in the coming months a tightening of wages and a higher cost of living due to a weak pound.
The figures appear “disturbing” for Rehana Azam, the GMB national secretary of public services, since millions of workers feel that wages are falling in Britain. This is because wage growth has fallen below the rate of inflation, and this threatens to disrupt the economy and damage living standards by weakening household spending power.
According to the ONS, “Latest estimates show that average weekly earnings for employees in Great Britain in real terms (that is, adjusted for price inflation) increased by 0.2% including bonuses, and by 0.1% excluding bonuses, compared with a year earlier.” Since inflation was lower in December and January, wage growth was only 0.1%, the weakest since 2014.
Average weekly earnings for UK employees, that aren’t adjusted for price inflation, rose by 2.3% including bonuses and by 2.2% excluding bonuses. Taking into account inflation, this shows that wages are squeezed at the fastest rate in three years.
With prices increasing and the pound dropping as the Brexit referendum is pushing up the prices of goods, living standards will deteriorate and households would have less money to spend.
The work and pensions secretary, Damian Green said: “This is yet another strong set of figures, with unemployment at a rate that hasn’t been beaten since the 1970s and more vacancies than ever before. More people are finding full-time jobs and average wages have grown yet again, meaning more families have the security of a regular wage.”
However, Frances O’Grady, the TUC general secretary, found that rising inflation is affecting wage growth and it will eventually hit living standards: “Pay packets are taking a hammering from rising inflation and falling wage growth. We now need urgent action to stop another living standards crisis. Working people will want to know when Theresa May is going to do something to help. We need more investment in skills and infrastructure to build strong foundations for better paid jobs. And it’s time to scrap the pay restrictions hitting midwives, teachers and other public servants.”
According to economist Stephen Clarke, “Britain’s brief pay recovery has come to an end; 40% of the workforce are experiencing shrinking pay packets, according to the latest figures, in sectors ranging from accommodation to finance and the public sector. Many more will join them in the coming months as inflation continues to rise.” He also added that the challenge for the government will be to boost wages across the economy and protect UK workers from struggling financially. He predicted that economic growth will slow down as people have less money to spend.
Consumer spending was also emphasised by an economic adviser, Martin Beck, who said: “This is bad news for consumer spending, a sector which is already showing signs of running out of steam. Granted, the apparent tightness of the jobs market may see pay growth suddenly break out significantly to the upside. But with pay remaining so unresponsive for so long, the chances of this happening look slim.”
So, while unemployment has fallen, living standards are slowly getting worse and real wages are stagnating. In addition, employment among women, disabled people, minority and ethnic groups is considerably less.
Will UK Companies Struggle after Brexit?
As living standards are tightening and wage growth is stagnant for employees, companies are also facing their own obstacles. UK companies are finding it difficult to get people with the right skills to help them expand, as a new survey by the British Chambers of Commerce has shown.
According to Dr Adam Marshall, Director General of the British Chambers of Commerce: “Businesses also continue to report recruitment difficulties, and while we’d like to see greater investment in training across the board, without access to a sufficient talent pool, companies are restricted in their development ambitions. “
He also added: "Our survey, with deep participation all across the UK, demonstrates the fact that there are longstanding structural issues here at home that we need to tackle to sustain success in the future. The competitiveness of firms depends on a bold domestic economic policy - not just a good Brexit deal."
For Theresa May’s government, this is another important factor that she would have to consider when planning a post-Brexit economic future. This is also entangled with the issue of immigration, since according to the ONS migrant labour is essential for the retail, hospitality, public administration and health sectors.
Like employees, companies have been struggling with the impact of a falling pound and rising prices. In the case of manufacturers, 76% of them said that raw materials were more expensive, 65% more than three months ago. For companies, the rise in inflation since the Brexit referendum has put immense pressure on firms: “While manufacturers have enjoyed a good quarter, they are facing higher costs at the factory gates, which increasingly translates into companies having to raise their own prices,” the Director of the British Chambers of Commerce said.
Economists and trade unions are warning about the stagnation of wage growth and a tightening of living standards, but the government would have to take action, invest in new talent, skills and infrastructure to improve jobs and earnings. Companies would also need to feel that they have the necessary talented employees to be able to improve their businesses, and labour shortages, underinvestment and inability to guarantee EU nationals’ rights to work within the UK are important issues.
Building an economy that works for everyone would be a huge undertaking, but it would have to address companies’ needs and consumers’ limited wage growth as well as the ensuing effect of their limited spending power on the economy.