UK inflation brings real wage growth to a standstill - ING
|James Smith, Economist at ING, explains that at 2.3%, UK inflation now equals wage growth and this squeeze on household incomes is a key reason why they don't expect the Bank of England to hike rates before the end of 2018.
Key Quotes
“The big story today is that core inflation has hit the 2% target for the first time since 2014, coming in way above expectations of a rise to 1.7% from 1.6% previously. Likewise, the headline rate pushed up to 2.3%, led by a big increase in fuel and food prices. The latter is significant because, having been driven considerably lower since 2014 by a supermarket price war, food deflation came to an end after almost three years.”
“Whilst this surge in inflation may raise a few eyebrows on the MPC, it’s what this means for consumers that really counts. At 2.3% YoY, wages (ex. bonuses) are now growing at the same rate as inflation. With rising food and fuel prices set to push inflation above 3% by the end of the year, 2017 looks set to be an increasingly tough year for households. We are already starting to see evidence of this squeeze in the spending data. Year-on-year growth in retail sales (ex. fuel) has fallen back from close to 8% in October to 2.6% in January, and consumer confidence has dipped.”
“So despite the surprisingly hawkish shift in the Bank of England’s stance last week, we suspect that concerns about surging inflation will be gradually outweighed by the slower growth backdrop. We don’t expect any change in Bank rate before the end of 2018.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.