| Click for the Finfacts Ireland Portal Homepage |

Finfacts Business News Centre

Home 
 
 News
 Irish
 Irish Economy
 EU Economy
 US Economy
 UK Economy
 Global Economy
 International
 Property
 Innovation
 
 Analysis/Comment
 
 Asia Economy

RSS FEED


How to use our RSS feed

Follow Finfacts on Twitter

 
Web Finfacts

See Search Box lower down this column for searches of Finfacts news pages. Where there may be the odd special character missing from an older page, it's a problem that developed when Interactive Tools upgraded to a new content management system.

Welcome

Finfacts is Ireland's leading business information site and you are in its business news section.

Links

Finfacts Homepage

Irish Share Prices

Euribor Daily Rates

Irish Economy

Global Income Per Capita

Global Cost of Living

Irish Tax - Income/Corporate

Global News

Bloomberg News

CNN Money

Cnet Tech News

Newspapers

Irish Independent

Irish Times

Irish Examiner

New York Times

Financial Times

Technology News

 

Feedback

 

Content Management by interactivetools.com.

News : UK Economy Last Updated: Mar 27, 2014 - 4:31 AM


UK income squeeze lowest for over four years as inflation falls to 1.7%
By Finfacts Team
Mar 26, 2014 - 2:51 AM

Email this article
 Printer friendly page

UK inflation fell to its lowest for over four years in February, reducing the squeeze on the cost of living while at the same time enabling to Bank of England to keep interest rates low for longer. The big uncertainty for the outlook for inflation lies with wages and salaries, which are finally starting to show signs of rising. The question is whether they will rise enough to worry policymakers into tightening policy sooner than currently envisaged.

Chris Williamson, chief economist at Markit, says in a research note that consumer prices rose just 1.7% on a year ago, the lowest annual rate of increase since October 2009, down from 1.9% in January. Inflation has fallen sharply since peaking at 2.9% last June, while at the same time unemployment has plummeted and the economy has grown rapidly.

The general expectation is that inflation is likely to continue to run at or below the Bank of England's 2.0% target for some time, subdued by lower import costs, resulting in turn from sterling's appreciation this year, as well as lower global commodity and energy prices. This means policymakers have greater leeway to keep interest rates at the record low of 0.5% for longer, as the economy goes through a 'sweet spot' of robust economic growth, falling unemployment and low inflation.

The big uncertainty is pay growth, a revival of which will threaten the Bank's easy-money stance. The potential for wages to start rising strongly should not be underestimated, given the speed with which the labour market is improving. The latest official data showed average wages and salaries rising 1.4% on a year ago in the three months to January.

Williamson says that while this means the squeeze on real pay from inflation is now at its lowest since April 2010, helping to engender a long-awaited consumer feel-good factor, it raises the possibility that the Bank could grow more worried about the possibility of wage inflation. There are already some signs of this: digging deeper into the official data reveals that pay growth has already in fact risen to an inflation-busting 3.2% in manufacturing, 3.0% in construction and 3.7% in retail, hotels and restaurants. Weak financial services and public sector pay growth remains an overall drag on earnings, but elsewhere the tightening labour market is finally feeding through to higher real-terms pay.

"Without the fall in inflation, there would undoubtedly be a rising clamour for policymakers to tighten policy to ward off fears of overheating, especially given the recent housing market upturn. Key to how long the Bank of England can keep rates low therefore will be earnings growth. If we see growth of wages and salaries pick up sharply in coming months, concerns about the feed-through to higher inflation will intensify, as will the pressure on policymakers to take some of the heat out of the economy via a first hike in interest rates. "

Check out our subscription service, Finfacts Premium , at a low annual charge of €25

Related Articles
Related Articles


© Copyright 2011 by Finfacts.com

Top of Page

UK Economy
Latest Headlines
UK in 28th rank of 30 advanced OECD nations for health resourcing: Economist Intelligence Unit
Business on a Shoestring: Keeping startup costs low in UK and Ireland
UK "underlying growth has stopped"
41,000 London properties held by foreign companies - 90% in tax havens
UK GDP rose 2.6% in 2014 up from 1.7% in 2013
Northern Ireland private economy contracted in December 2014
Northern Ireland may have a 12.5% corporation tax rate from 2017
UK moves ahead on 'Google tax' despite criticism
PwC charged with "selling tax avoidance on an industrial scale"; indulging in "scams"
Income inequality damages economies; Rich-poor gap highest in 30 years
Cameron warns of risk of another global recession
Only 80,000 of 1.1m UK jobs added since 2008 were full-time employee positions
UK added 112,000 jobs in third quarter; Pay inches above inflation - first time in 5 years
Germany and UK agree to restrict 'patent box' tax incentives to local R&D
German retailer Aldi to create 35,000 new jobs in UK by 2022
UK GDP growth slowed in the three months to September
UK retail sales fell in September; Tesco, Debenhams, Foxtons report market stress
UK faces more austerity and less chance of tax cuts
Globalization, the underclass and the need for a new model - Part 2
Northern Ireland PMI shows sharp increase in activity
UK economic growth revised up - above pre-recession level
London world’s most expensive city for companies to locate employees
UK retail sales in August best performance since January
UK economy added more net jobs in past 4 years than rest of the EU combined
UK to announce stiffer penalties for offshore tax evaders
UK economy since launch of the euro in 1999
IMF says British pound overvalued
UK profit warnings reach highest first half total since 2011
UK GDP up 3.1% in 12 months to end Q2 2014; Economy overtakes pre-crisis 2008 peak
Wealthy foreign students overtake finance professionals as renters in prime Central London areas
UK attracts most inward investment projects since records began in 1980s
Trends in UK and US part-time and self employment since 2008
UK labour participation at 73% - highest in decade; US at 63% - lowest since 1978
More than 20,000 client names of Jersey tax haven bank leaked
UK house prices overtook their 2007 peak in Q2 2014
UK recovery continues at robust pace
UK employment rose again at a record pace in the three months to April
UK tax revenues rose to record in 2013/2014 with help from tax dodgers
Overseas visits to London in 2013, up 43.5% in 10 years
UK economy grew 0.8% in Q1 2014; Almost back to 2008 peak