Reuters logo
UK consumers to feel the pinch as inflation outpaces wage rises - Reuters poll
March 7, 2017 / 1:24 PM / 7 months ago

UK consumers to feel the pinch as inflation outpaces wage rises - Reuters poll

A shopper selects fruit at the Asda superstore in High Wycombe, Britain, February 8, 2017. REUTERS/Eddie Keogh

LONDON (Reuters) - British wage growth won’t keep up with soaring inflation this year, according to economists in a Reuters poll who were concerned a consumer spending slowdown was underway.

Shoppers have been one of the main drivers of economic growth since Britain voted in June to leave the European Union and any signs they are reining in spending will be a worry for policymakers.

Prices are expected to climb 2.6 percent this year, the poll of 60 economists taken this week found, yet wages will only rise 2.4 percent, crimping household budgets.

Twenty-four of 33 economists who answered an extra question said they were concerned a consumer spending slowdown was underway while six were very concerned. Only three were not concerned.

“While at least some pick-up in wage growth looks as though it is in prospect, we don’t think nominal wage growth will rise as quickly as inflation, suggesting that real earnings growth will probably be fairly subdued,” said Ruth Gregory at Capital Economics.

“There are growing signs that the post-referendum strength in consumer spending is fading.”

British consumers are cutting back on non-essential spending as the impact of last year’s Brexit vote pushes up the cost of their day-to-day shopping, two surveys showed on Tuesday.

At the end of 2016 the economy sped up, data showed last month, but over the whole year it was weaker than previously thought amid signs the Brexit vote will increasingly act as a brake on growth.

Gross domestic product will expand 1.6 percent this year and just 1.2 percent next year, the poll found. It will grow 0.4 percent this quarter but only 0.2-0.3 percent for the remaining quarters of 2017.

SAVING FOR A RAINY DAY

After the referendum, the Bank of England cut interest rates to a record low of 0.25 percent and expanded its asset purchase programme.

Now policymakers are watching closely to see if households curtail spending as they decide whether the economy needs more monetary stimulus to spur demand or an interest rate hike to curb inflation.

None of the 60 economists polled expect any change to policy when the Bank announces its latest decision on March 16 and few forecast any change in Bank Rate until 2019 at least, despite inflation exceeding the Bank’s 2 percent target.

Only a couple expect the quantitative easing programme to be tweaked.

“It is unlikely the BoE will tighten monetary policy in a time of elevated political uncertainty. We think we need to see slower growth and/or higher unemployment before easing becomes likely again,” said Mikel Milhoj at Danske Bank.

Chancellor Philip Hammond is due to announce an annual budget statement on Wednesday and has signalled he will keep money in reserve in case the economy needs help to get through a slowdown as Britain leaves the EU.

“We expect the Chancellor to bank the great majority of any borrowing undershoot rather than spend it, though there may be some small net giveaways,” said John Hawksworth at PwC.

The Office for Budget Responsibility will revise down its forecast for government borrowing over the next five years, nearly all of the economists polled who answered an extra question said.

They gave a median reduction of 25 billion pounds and forecasts ranged from 5 billion to 80 billion pounds.

($1 = 0.8205 pounds)

Polling by Indradip Ghosh and Vivek Mishra; editing by Ken Ferris

Our Standards:The Thomson Reuters Trust Principles.
0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below