The Office for National Statistics yesterday released a report that shows real wages in the UK have been falling consistently by 2.2% annually since the first three months of 2010, the longest period of falls since at least 1964
Real wages calculate earnings when the rising cost of living, or inflation, is taken into account.The ONS said that the response to the fall in productivity in 2008 and 2009 was the main reason behind the fall in real wages.Different inflation rates between what is produced and what is consumed were also highlighted while the report also shows shorter working hours and reduced output were factors behind falling wages.
As I reported previously back in November, and indeed we have highlighted here on other occasions, the levels of household income and household debt are a major obstacle to a sustained recovery and must remain a real cause for concern for both the government and BOE.
The ONS report follows one published by the Institute for Fiscal Studies on Thursday which suggested that a mid-range household’s income between 2013 and 2014 was 6% below its pre-crisis peak. Of more concern to the UK government is the report’s conclusion that living standards will not return to pre-crisis levels before the next election in 2015, and indeed for many years to come.
Real wages extend longest period of fall since 1964
I have long argued here and elsewhere that any increase in interest rates would have a significantly negative impact on the fragile UK recovery, as it’s been largely fuelled once again by household debt/consumer credit proving that we have not learnt our lessons from before. Even the smallest of rises would cripple many households and Mr Carney now seems to have a fuller grasp on that reality judging by his efforts to convince us that hikes in rates are not happening anytime soon.
The rich have been getting richer and the poor have been getting poorer, and that’s not a political statement just a fact, as the government’s austerity measures kick in. But we, and other countries, need a better balance if we are to witness real growth and not just one fuelled on credit.
So before anyone gets too myopic about rushing in to buy the pound on any hint of interest rates rises, or better employment data, or the fact that we have the fastest growing economy in Europe, just pause to have a look at the bigger picture.
It seems to me that a few people out there this year already have, but for the moment at least the pound largely still remains one of the chosen few.
