Tuesday 24 April 2018

Inflation and sluggish wage growth hit UK economy

A theatre piece called Inflation by Tangled Feet which tries to educate the audience on the worldwide banking collapse and Brexit, was staged during the Shop Front Festival in Coventry. Photo: PA
A theatre piece called Inflation by Tangled Feet which tries to educate the audience on the worldwide banking collapse and Brexit, was staged during the Shop Front Festival in Coventry. Photo: PA

Fergal O'Brien and Lucy Meakin

The strain on UK consumers from faster inflation, sluggish wage growth and Brexit uncertainty continues to take its toll on the economy, with house prices falling and spending weak.

Nationwide Building Society said home values fell for a second straight month in March, and the Bank of England (BOE) reported a bigger-than-forecast decline in mortgage approvals.

Detailed statistics for the end of 2017 spelled out why households are under pressure, with real disposable incomes falling for the first time in almost a year.

The numbers come one year to the day before the UK leaves the European Union, a decision that's had huge repercussions for the economy.

The picture they paint is one that's dominated the backdrop over the past year, with the pound's slump after the 2016 Brexit referendum pushing up inflation.

That suppressed consumer demand and economic growth, which is forecast to slow for a fourth year in 2018.

Figures from the statistics office showed that, adjusted for inflation, disposable incomes per head fell 0.1pc in the fourth quarter.

Consumer spending climbed 0.3pc, matching the weakest reading in three years. That helps to explain the troubles engulfing the retail sector, where stores from home-improvement chain B&Q to suit seller Moss Bros have warned of difficult trading conditions.

The BOE even said this week that it's seeing signs of "financial distress" in the industry.

The General Retailers Index, which includes clothing chains and home-improvement stores, has fallen almost 8pc this month, making it the second-worst performer in the FTSE 350 Index.

While inflation has cooled in recent months and wage growth is starting to pick up, that good news for households is unlikely to give spending an immediate fillip, with workers still not seeing increases in real incomes. Yesterday, GfK downplayed an improvement in its consumer confidence index in March, saying it's "still a little early to be talking about green shoots".

Nationwide said in its housing report that London remained the weakest market, with prices down 1pc in March from a year earlier.

That tallies with other surveys that show the city is taking the biggest hit after years of outperformance.

Nationwide chief economist Robert Gardner cited subdued confidence and the hit to workers' pockets from inflation.

"Subdued economic activity and the ongoing squeeze on household budgets is likely to continue to exert a modest drag on housing market activity," he said. (Bloomberg)

Irish Independent

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