Pay not keeping up with inflation

Figures have emerged that the growth of wages is way below the growth of inflation, adding further to the misery of the consumer. The average wage increased by only 2% on the year ending in February, yet inflation rose to 4.4%. Although there was an unexpected drop in March, it is still standing at double the wages growth.

City economists have warned that although the Bank of England will welcome the gap between the growths of wages and inflation, it’s still detrimental to the spending power of the UK workforce. The Policymakers at the bank’s MPC (Monetary Policy Committee) have been holding interest rates consecutively at 0.5% for 25 months, and they believe that the upward pressure on the inflation rate is widely due to temporary shocks in share prices.

A senior economist for Capital Economics, Vicky Redwood, has said that the recovery in the UK’s labour market is now looking a bit healthier but as ‘real pay’ continues to fall, it doesn’t bode well for the consumer spending. She also said that it was reassuring from the view of inflation, and reduced the chances even further of the MPC raising the interest rates next month, but gap between inflation and wages was very worrying.

Figures were revealed last month that the disposable income in a household had fallen for the first time in 3 decades by 0.8%. The sales on the high street is where the where the drop in spending is most obvious. Profit warnings have already been issued by Dixons, HMV and Mothercare, while well known off licence chain Oddbins has gone into administration. More profit warning are expected from other high street retailers.