Will Bartleet, CIO and Portfolio Manager of Pacific Multi-Asset
UK Paycuts – Thanks for your hard work, here's a pay cut
Imagine walking into your manager’s office at the end of a good year and your boss smiles and awards you a pay cut. This is exactly what has happened to workers in the UK this year. Whilst wages have risen 2.1%, inflation is running at 3.6% so in real terms, the average worker is 1.5% poorer than they were last year. Prior to 2008, workers’ pay exceeded inflation by 2.5%, so every year people ended the year better off than they started it. Since then real wage growth has been negative, so on average, after inflation, UK workers are earning less than they were nearly 10 years ago.
UK consumer spending has held up, as households have responded to falling real wages by borrowing more and saving less. Consumer borrowing is growing at more than 10% per annum, whilst the UK households are saving less than ever: just 1.7% of disposable income, lower than it has been since records began in the 1960’s. For now, the UK economy is being propped up by an increasingly indebted consumer, but how long can it last?
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