Is Brexit Pinching Your Pennies?
2018 is closing in, with many of us trying to decide what New Year’s resolution we are going to break, and in tandem comes a sense of optimism and anticipation for what the new year will bring. One thing that 2018 will not give you is real wage growth. Well, not until the end of the year, anyway.
According to a report by living standards thinktank, Resolution Foundation, real wage growth is set to buoy at 0% in the year of 2018, as wage growth rises in line with inflation. This will mean exacerbated pressure on living standards in households across Britain, especially low-income families. However, the Resolution Foundation optimistically added that inflation will begin to fall towards the tail-end of 2018.
The slight uplift on 2017 will be very much welcomed by millions of households, as wage growth was outstripped by rising inflation, caused by the decline in the value of the Pound after the Brexit vote in 2016. But it means a “noticeable” year-on-year real wage rise is not now forecast until at least December 2018.
Resolution Foundation also highlighted the rise in the minimum wage for the lowest paid workers, who will see their hourly rate rise by 4.3% in April to £7.83, and an uplift in productivity growth to 1.2% in the three months to October, which will more than likely encourage further wage growth.
Torsten Bell, the director of the Resolution Foundation, summarised that 2017 was a “tough year for livings standards as the pay squeeze returned.”
“The good news is that things will get better next year,” he said. “The bad news is we may only go from backwards to standing still, with prospects for a meaningful pay recovery still out of sight.
“And while the public have famously defied recent gloomy economic predictions and continued to spend, public expectations do appear to be moving in line with experts’ pessimistic predictions. Over half expect no pay rise next year and households are just as likely to expect their financial situation to get worse as improve next year. This pessimism is strongest among those on lower incomes, unsurprisingly given big benefit cuts set to take place.”
The Office of National Statistics (ONS) stated that consumer spending rose 1% year-on-year in the July-to-September period, the lowest in more than five years. The ONS added that UK households' expenditure had exceeded income for four quarters in a row, suggesting that people are dipping into savings to fund their spending. It said it was the first time since current records began in 1987 that this had happened over such a long period of time.
According to the Resolution Foundation, more than a third of the poorest households believe their financial situation will get much worse – 35% - compared with just one in six of the richest households – 17%.
A survey conducted by Lloyds of more than 2,000 people from across the UK in November found that 63% feel negative about the current levels of inflation. Two thirds of survey participants feel negative about the UK economy, with 65% feeling not good or not good at all about the housing market, up 6% from last year.
Ian Stewart, chief economist at Deloitte stated "The UK's performance has been rather better than the gloomy talk would suggest. Growth has come in stronger than expected a year ago and the pace of activity has edged up since July.
"A whopping sterling devaluation certainly has squeezed spending power and incomes, just as you'd expect, but it's also helped reboot manufacturing output.
"Overall, growth has slowed modestly, not collapsed. Talk of an end to UK growth has been somewhat exaggerated."
Earlier this week, the International Monetary Fund (IMF) cut its UK economic growth forecast, blaming Brexit uncertainty. The IMF expects UK growth of 1.6% this year, down slightly from its previous forecast of 1.7%. It expects growth to slow further next year, to 1.5%.
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