Rising cost of living is damaging economy recovery

BanknotesA survey conducted by organisation Markit has indicated that a failure to address the rising cost of living could result in the economy being terribly damaged in the near future.

This is despite the fact that it is expected to be announced that the UK has experienced a strong level of growth in the third quarter. The company has cited that consumer spending will be the basis for economic recovery and the growing cost of living might severely lessen the amount people can spend across the UK.

According to the study, recent announcements about rising energy prices, coupled with rising prices in other sphere of expenditure mean that the rate of growth might stunt in upcoming months.

Nevertheless, a 1% growth in GDP is set to be announced this week which means that it may well have increased by 3% by the end of the year.

However, many commentators have issued a warning about the rising cost of living citing that it will lead consumers having a far lower amount of disposable income to spend on products. The company argued that until something is done to bring wages in line with the cost of living, that the government risks ebbing growth.

Tim Moore, senior economist at Markit, stated: “The mood among UK households is less downbeat than has been the case for most of the past four and a half years. However, signs of an outright improvement in financial wellbeing are thin on the ground as incomes continue to lag behind living costs.”

Statistics indicate that the rate of inflation is still hurting a number of people across the UK, with the average wage only rising by 0.7% in the three months leading up to August. This compares to an inflation rate of 2.8% which continues to mean that the cost of living is higher than many people’s incomes.

The Labour party have called for more to be done in order to help people cope with the growing expenditure costs that they are being subjected to.

Lloyds recently indicated in a survey that although consumer’s confidence in the economy was growing, that they were still apprehensive about the growing demands on their incomes and the consistent rises in the things they needed to buy.

“A softer improvement in confidence about the future situation appears consistent with areas of pressure on consumer budgets against a backdrop of static wage growth,” Lloyds said.

“Although gas and electricity spending growth has eased a little in September to around 8% on a year ago, gas and electricity prices remain a source of concern for overall price inflation for 77% of respondents.”

Deloitte reiterated Lloyd’s sentiments citing that consumer responses about the cost of living have indicated that there may well be a steady halt in economic growth.

Chief economist Ian Stewart, of accountancy giants Deloitte, stated:

“Rising consumer confidence seems to reflect optimism about the economy, a stronger jobs market and a better outlook for housing. The central problem for UK consumers remains, as it has for the last three years, declining spending power”.

After taking out inflation and tax changes, earnings have fallen by about 1.5% in the last year. This actually represents an improvement compared [with] the fierce income squeeze of 2010 and 2011, but it leaves consumer spending power on a declining path. The key to a sustainable recovery in consumer activity is falling inflation and a pickup in earnings.

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