Fundamental Analysis UK Incomes Lag Inflation UK Incomes Lag Inflation Thursday, 28 December 2017 19:08 Share 0 Tweet 0 Pin it 0 +1 Historically, the UK has seen some periods of high inflation where people’s spending power has been eroded by sharp increases in the prices of goods. The Consumer Price Index measure of inflation peaked at 24.89% in 1975, the official unemployment figure was as low as it stands today, 4.7%. This ought to mean that wages should rise in order to attract scarce employees (anything under 5% unemployment is considered by many economists as full employment), but that has not bee the case in 2017 – by comparison to 1975, inflation is well under control at 3.1% for the year to November. However, in the UK average wages rose by 2.3% in Q3 compared to the same period in 2016, meaning that for many, disposable income is falling. This contrasts with 1975 where high wage inflation failed to match high price inflation – now low wage inflation is failing to match (historically) moderate price inflation. Anecdotal evidence suggests that the pinch is greater than that reflected in the statistics. On 3/6/16, before the Brexit referendum and stripping away a little of the speculation on the Pound rising as a result of a Remain vote, the Pound bought $1.4521 and €1.2820; on Friday, these figures had changed to $1.3378 and €1.1300. This represents a fall in Sterling of 8% and 12% respectively. Consequently, the price of goods imported from the EU or paid for in US Dollars has risen by 3.9 and 2.6 times the official inflation rate due to currency fluctuation. According to the UK’s Office for National Statistics (ONS) read disposable incomes in the UK rose by 0.2% in Q3. The Q3 GDP growth figure was 0.4%, slightly more than half of the Q3 2016 growth seen of 0.7%. UK consumer spending increased by 1% year-on-year for September, however. The ONS suggests that some people are either using savings to cover spending or taking on debt to do so. Whilst the Bank of England interest rate is just 0.5%, the typical interest on a UK personal bank loan is between 10.3 and 12.5% for those with excellent credit scores or 25.8 to 32% for those with bad credit scores. Credit Card interest rates (on borrowing up to the limit and meeting minimum repayment) are typically between 16 and 21%. Dr. Mike Campbell Dr. Mike Campbell is a British scientist and freelance writer. Mike got his doctorate in Ghent, Belgium and has worked in Belgium, France, Monaco and Austria since leaving the UK. As a writer, he specialises in business, science, medicine and environmental subjects.