Prices rising faster than wages and this is just a Brexit downpayment

It might take more than that "strong and stable" government we keep hearing about to steady an economic ship that's moving into stormy waters 

James Moore
Chief Business Commentator
Tuesday 16 May 2017 12:48 BST
Shoppers are facing rising prices
Shoppers are facing rising prices (Getty)

While the politicians trade blows, the average Briton is getting poorer. Quite a bit poorer, in fact.

Inflation jumped to 2.7 per cent last month, the highest since September 2013, as the Brexit driven fall in the pound continued to filter through into the prices paid by the consumer.

Wage growth, unfortunately, isn't keeping up. It stood at 2.3 per cent.

The TUC says working people are still £20 a week worse off on average in real terms than they were before the financial crisis.

It should also be remembered that the 2.3 per cent I mentioned is an across the board number. Some people are actually doing ok, some are doing a lot better. But an awful lot of people are doing worse.

I’m thinking here of those working in the public sector, where wage growth is capped at just 1 per cent for all but the lowest earners. There isn’t much sign of any summer sun for nurses, teachers, social workers, and a host of other people who do the tough job of providing essential services.

The only crumb of comfort to come from the figures is that the limited growth in wages will, in theory, reduce the pressure on the Bank of England to impose an interest rate rise with the aim of bringing inflation back down to its target.

All this may be temporary. Some forecasters think it will be. Suren Thiru, head of economics at the British Chambers of Commerce, says we’ll have to put up with some more of this in the months ahead as the (Brexit driven) rise in the cost of raw materials continues to work its way through the system. However, he thinks that subdued growth in wages that I mentioned should keep a lid on things.

Which sounds fine; short term pain ahead of a better future. There's one for the politicians!

But what happens if the Brexit talks go badly, causing the pound to fall further? What happens then?

They weren’t exactly going well before the election, and Theresa May then went and exacerbated a bad situation with her paranoid complaints about EU officials being out to get her (or words to that effect). Hey, is that a bridge burning?

Of course, she may simply have been stoking nationalist sentiment with the election starting, which is, pathetic, depressing and sad, but that’s what politicians do during election campaigns.

Pragmatism and common sense (ok maybe not the latter) may return afterwards, because while it’s one thing to damage the economy (and Brexit is surely doing that) it’s quite another to tip if off a cliff, by following the advice of the likes of Iain Duncan Smith and Bernard Jenkin and sailing off into the North Sea without a deal. All the more so if the opposition starts to look credible, as it soon might.

In addition to rising prices outstripping wages (which means the majority of people are getting poorer) forecasts already suggest that unemployment is set to rise (the latest historic data will be revealed tomorrow). Consumer confidence is ebbing away, important given the role the consumer has played in keeping gate economy going up until now, and growth is slowing markedly.

Whomever Ms May installs as Chancellor when after her (probable) victory isn’t going to have a lot of fun over the next few months.

But perhaps I’m just being a Jeremiah. Perhaps that “strong and stable” Government we keep hearing about will steady the ship and we can all march forward proudly into our glorious independent future (copyright Johnson, Boris). And yes, I do believe that’s Harry Potter waving at me from his broomstick. Hi there Harry!

If you’ve still got money after that inflation has taken a bite out of your wallet? Now might not be the best time to be making a big ticket purchases, especially you need to borrow.

Remember, all this is just a down payment on Brexit. Just saying.

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