In October of this year, inflation stood at 1.3%, while wage growth was higher, 1.8% up from last year, continuing a trend noted in September. Data from the ONS shows that this is the first time in five years that wages have grown more than CPI. This marks the end of a six year period of falling wages in the UK, something George Osborne has announced as a “major moment in British recovery,” echoing his claim in his Autumn Statement that “our long term economic plan is working.”
This comes at the same time as the news that the unemployment rate has stabilised at 6.0%, slightly higher than the 5.9% predicted in a poll by Reuters, but nevertheless marking the lowest level in six years. There are now 3 million fewer unemployed people per job vacancy than there were this time two years ago, representing a rather dramatic improvement.
The Reuters poll on wage growth was also slightly off the mark, but this time the reality actually improved on the forecast – they expected wages (excluding bonuses) to increase by 1.5% in the August-October period; in reality they increased by 1.6%
The general consensus among economists and analysts is that this trend is likely to continue, as inflation slows and interest rates look to remain stable until late 2015.
Indeed ING economist James Knightley has come out saying that “with inflation running at just 1% and set to fall further we are soon going to be seeing quite a pickup in real take-home pay. With consumer confidence back at pre-crisis levels this should be very good news for consumer spending.”
All this means that in the midst of ongoing economic crisis in the Eurozone, and turmoil in Russia, the UK looks to be doing rather well in comparison, benefiting from falling oil prices and stable, low interest rates.
As Lib Dem chief secretary to the Treasury Danny Alexander announced: “the earnings figures show that the positive effects of our economic recovery are beginning to show in peoples wage packets.” It looks like finally workers and consumers are benefitting from the shifting economic landscape; we are feeling the effects at the level of the individual rather than as an economic monad.
However, Mark Carney had said that at least part of the reason for maintaining rates at 0.5% was the perceived stagnation (or at least slow growth) in the average wage, whose increase may therefore speed up the hike in interest rates. The earliest forecasters are predicting the hike to occur though is after the next general election in May though, and even then should wage growth continue to increase, it is unlikely that interest rates will rise to a troublesome level.
David Cameron is attempting to latch on to this positive news to help carry him to victory in the upcoming elections, echoing George Osborne’s positive sentiments, claiming that this all marks “an important moment for our country”.
When the dust settles though, it may be too little too late for Cameron; is this brief excitement about positive growth really enough?
Forecasters are still saying we’ll have to wait for another five years or so before the national earnings reach the highs they did in 2009-10.
All in all though, positive news is positive news, particularly in a time where the global economic climate is tumultuous to say the least, and so we should count our blessings for the time being.
In October of this year, inflation stood at 1.3%, while wage growth was higher.