UK wages grow at fastest in a decade but Brexit casts shadow
LONDON (AP) — Wages in Britain are rising at their highest rate in nearly a decade, official figures showed Tuesday, but uncertainty over the country’s looming exit from the European Union means consumers are unlikely to spur the economy on faster in coming months.
Average weekly earnings in the three months through August were 3.1 percent higher than the year before, the Office for National Statistics said. That’s up from 2.9 percent in July and represents the biggest increase since January 2009, when wages were constrained by the financial crisis.
The pick-up had long been anticipated by the Bank of England given that unemployment is at a 43-year low of 4 percent. That improvement in living standards could be limited, however, by uncertainty over Britain’s EU exit in March — particularly if more businesses join the likes of AstraZeneca and Ford in raising doubts about their investments in the country.
“With growth in productivity still weak, inflation set to fall back and firms becoming more cautious about hiring, we doubt that wage growth will sustainably exceed 3 percent over the next six months,” said Samuel Tombs, chief U.K. economist at Pantheon Macroeconomics.
British households have endured one of the most protracted income squeezes in the past 100 years. In addition to the global financial crisis a decade ago, which caused job losses and insecurity, they have had to live through big government-imposed spending cuts.
Prime Minister Theresa May said this month that she would end austerity in government spending, that people should know “their hard work has paid off” and that the “the end (to austerity) is in sight.”
A well-respected think tank warned that ambition won’t come cheap , requiring an extra 19 billion pounds ($25 billion) a year in spending on public services by the year 2022-23.
The Institute for Fiscal Studies said ending austerity looks incompatible with another major aspiration — to balance the books by the mid-2020s — without substantial tax rises or much stronger growth.
“This is going to be the toughest of circles to square,” said Paul Johnson, the director of the IFS, whose report was produced in association with Citi and The Institute of Chartered Accountants in England and Wales.
Treasury chief Philip Hammond is not expected to announce radical changes to spending in his annual budget statement on Oct. 29. More detail is expected next year, when he carries out a broader review of spending and it becomes clearer what Brexit will mean economically.
The government has promised increases in health, defense and aid spending over coming years. Just keeping spending constant on other public services after accounting for inflation — a limited definition of what ending austerity means — would require an additional 19 billion pounds, according to IFS’s analysis.
Britain has lived under public spending cuts since 2010, when the then coalition government dominated by the Conservatives said its priority was bringing the budget under control.
Opponents say the cuts proved counter-productive as they meant economic growth was lower, too. And they say Brexit vote was partly a revolt against austerity, which is likely to be one of the main issues marking the next general election, which has to take place by the middle of 2022.