UK inflation at highest since 2013, wages not keeping up with prices

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By Euronews
UK inflation at highest since 2013, wages not keeping up with prices

Inflation in Britain has hit its highest level in three and a half years. It was driven up by more expensive clothing and energy as well as pricier air fares over the Easter holiday.

Rising prices are hammering pay packets

Frances O'Grady Trades Union Congress General Secretary

The consumer price index – the CPI – was up by 2.7 percent in April from the same month last year. A year ago the annual increase was just 0.3 percent.

It is bad news for consumers as wages are failing to keep pace with prices.

Analyst Nick Parsons with National Australia Bank says it’s set to get worse: “We’ve actually now got that long feared real income squeeze upon us. We certainly don’t share the Bank of England’s optimism… when it talked about a significant pick up in wage growth over its forecast horizon. We simply don’t see that pick up in wage growth. And with CPI likely to turn out a bit higher than it is forecast then we see that squeeze on real incomes really dampening consumer behaviour in the UK.”

In other words, people will have less money, so they will spend less, which will slow down Britain’s economic growth.

“The last thing Britain needs is another real wage slump. But rising prices are hammering pay packets,” Trades Union Congress General Secretary Frances O’Grady said.

Prices have been pushed up by the fall in the value of the pound after the referendum vote for Britain to leave the European Union.

Last week, Bank of England Governor Mark Carney warned 2017 will be challenging for consumers, with inflation now almost certain to overtake wage growth.

The UK central bank is forecasting inflation will peak at nearly three percent by the end of this year, but many economists expect it to go higher sooner.