Brexit slowdown: wages not keeping up with inflation
And despite Theresa May’s denial, Brexit is to blame.
Figures published today in the labour market report show that average regular pay (excluding bonuses) increased by 2.1% and average total pay (including bonuses) increased by 2.4%. But the report by the Office for National Statistics (ONS) said that once adjusted for inflation, average regular pay actually fell by 02% while average total pay only increased by 0.1%. This is the lowest growth rate since 2014.
Yesterday the ONS published the latest inflation figures showing a higher than expected rise to 2.7% in April. Simply put, wages are just not keeping up with price rises meaning workers have less to money to spend. This is also what the Bank of England said when it published its inflation report last week.
Since the vote to leave last year, the pound has sunk by around 17% and hasn’t recovered. This has led to rising costs for business, which has then been passed on to higher prices for consumers. In a press conference today as reported by the Guardian’s live politics blog, Theresa May denied that the Brexit vote was to blame for the slide. However, as James Ball points out in his tweet below, the evidence suggests otherwise…
May: “Sterling had started to slide since before the vote came through.”
— James Ball (@jamesrbuk) 17 May 2017
Commenting on the report, the British Chamber of Commerce (BCC) said they expected the disparity between pay and price growth to increase, which is likely to impact household spending and weaken overall economic activity.
With increases in regular pay slowing again, earnings growth is now comfortably trailing behind inflation.
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.
Suren Thiru, British Chamber of Commerce
The BCC’s Suren Thiru also warned that whilst the report showed unemployment falling and employment levels rising, this could change as “labour market indicators often lag behind the wider economy”. He added “it remains likely that employment growth will start to soften over the near-term, as more subdued economic conditions and the rising cost of doing business in the UK stifle firms’ ability to recruit”.
It’s a stark warning to politicians campaigning to restrict immigration and a reminder that if businesses are struggling to recruit, this could impact the UK’s reputation as a good place to do business.
Thiru called on the next government to “do more to close the skills gap” as well as deliver “a future immigration regime based on economic need, rather than an arbitrary migration target”. He said “this will help firms compete on a the global stage, boosting UK productivity and growth”.
We’re still waiting for Theresa May’s manifesto but she’s expected to re-commit to reducing net migration to the “tens of thousands”, despite having consistently failed to do so over the past seven years. And despite the damage to the economy that actually meeting the target would do.