December 17, 2014 / 9:34 AM / 3 years ago

Earnings recovery might not help Cameron much before vote

City workers head to work during the morning rush hour in Southwark in central London April 16, 2014.Toby Melville

LONDON (Reuters) - The wages of British workers are rising and inflation is tumbling, but a turnaround in living standards may prove to be too little, too late for Prime Minister David Cameron as national elections approach.

Earnings, excluding bonuses, grew by more than inflation for a second straight month in October after lagging behind prices for five years, data showed on Wednesday.

A day earlier, data showed Britain’s inflation rate fell to 1 percent, its lowest in more than 12 years, and it looks set to weaken further in the coming months.

Cameron, who is banking on his party's reputation for running the economy to carry him to victory in elections next May, told parliament the numbers represented "an important moment for our country."

His Conservative Party is trying to counter accusations from the opposition Labour party that five years of stagnant wages and rising prices have left many Britons in a cost-of-living crisis.

The combination of inflation and incipient wage growth looks set to extend into 2015. That could help Cameron and his party narrow a small, stubborn lead Labour has held in most opinion polls. But the task of fixing the loss of spending power since the financial crisis remains huge.

Britain's official budget forecasters have said they expect real earnings to return to their 2009–10 levels only in 2018–19.

Rob Wood, an economist at Berenberg bank, said this week's data helped the Conservatives to tell a positive story about where the economy is heading. "But the past is still one of four years of a heavy squeeze on consumers' budgets and that is not going to be erased by six months of gains."

The Office for National Statistics said on Wednesday that average weekly earnings excluding bonuses rose by an annual 1.8 percent in October, the same as September. Measures of pay over the three months to October were also stronger than inflation and above economists' forecasts.

Ian Jackson, a senior economics lecturer at Staffordshire University, said that even if the data meant real earnings were set to rise over the long term, it was unclear how much better off people would feel before the election in May.

"It might have come too late for it to affect the election, even if it is a turning point," he said.

Ben Page, chief executive of polling firm Ipsos MORI, predicted little impact on public opinion. He noted support for the Conservatives had barely changed despite nearly two years of economic recovery so far.

"It's helpful, but it's not a knockout blow for Mr Cameron," he said of the latest data. "It will help him focus his arguments going into the election, which are going to be about economic competence and the personality and character of (Labour leader) Ed Miliband.”

The ONS said Britain’s unemployment rate did not fall as expected but remained unchanged at 6.0 percent in the three months to October, matching its lowest level in six years.

In another sign the surge in job creation might be losing some of the momentum seen since mid-2013, the number of unemployed fell by 63,000, the smallest decline since the three months to September last year.

As well as Britain's political leaders, the Bank of England is keeping a close eye on labour costs as it considers when to start raising interest rates from their record low, something not expected until well into 2015.

A majority of BoE policymakers think wages need to grow faster to hit the bank's 2 percent inflation target in the medium term, according to minutes of their December meeting published on Wednesday.

Additional reporting by David Milliken, Andy Bruce and Sarah Young; Writing by William Schomberg; Editing by Tom Heneghan, Larry King

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