Is the ‘cost of living crisis’ over?

Official figures are starting to show that wages are rising faster than inflation, which means that they are going up in ‘real’ terms for the first time in four years. Forecasters and economists are becoming increasingly optimistic, says The Daily Telegraph.

For instance, “the EY ITEM Club says the UK is set to experience a long period of low inflation growth as the economic recovery gains traction”. Roger Bootle, the head of usually bearish research house Capital Economics, thinks that “the so-called cost of living crisis could soon be over”.

A return to economic prosperity “means Labour’s entire election strategy” has “effectively become redundant”, says the Daily Mail’s Daniel Martin. He notes that both George Osborne and Nick Clegg have used the recent good economic news to argue that Ed Miliband and Ed Balls have been “proved wrong time and time again since the last election”. They also aim to contrast the recovery with the state of the economy when the coalition took power.

“There’s not much Labour can do about the past,” writes former cabinet minister Alan Milburn in the Financial Times. “But they can do something about the future”. This involves avoiding “obvious electoral elephant traps”, such as dancing “to a decidedly Old Labour tune”.

Labour’s perceived hostility to business risks “a rerun of the 2010 election campaign, when not a single major corporation was prepared to endorse it”.

History shows that “Labour wins a parliamentary majority” when “focused as much on creating wealth as distributing it”. If they can do this, they can still “make the economy an
advantage for Labour, not a disadvantage”.

But the latest data won’t convince many people that “the cost of living crisis is over”, writes Balls in The Guardian. In fact, “such a declaration, on the back of a handful of
economic statistics, will only confirm just how out of touch this government is”.

After all, “average earnings figures, which can be driven by large pay rises at the top, often mask what is happening in the middle and at the bottom”. The Evening Standard’s Russell Lynch agrees.

While economic data “has never been more political”, the reality is that “the truth is more nuanced”. It’s true that “the economy is growing, house prices are surging”; but “few consumers hearing the good news are actually prepared to spend any more yet”.

Even though real wage growth is a “turning point”, it’s important to recognise that “there’s a lot of ground to make up”.


Claim 12 issues of MoneyWeek (plus much more) for just £12!

Let MoneyWeek show you how to profit, whatever the outcome of the upcoming general election.

Start your no-obligation trial today and get up to speed on:

  • The latest shifts in the economy…
  • The ongoing Brexit negotiations…
  • The new tax rules…
  • Trump’s protectionist policies…

Plus lots more.

We’ll show you what it all means for your money.

Plus, the moment you begin your trial, we’ll rush you over THREE free investment reports:

‘How to escape the most hated tax in Britain’: Inheritance tax hits many unsuspecting families. Our report tells how to pass on up to £2m of your money to your family without the taxman getting a look in.

‘How to profit from a Trump presidency’: The election of Donald Trump was a watershed moment for the US economy. This report details the sectors our analysts think will boom from Trump’s premiership, and gives specific investments you can buy to profit.

‘Best shares to watch in 2017’: Includes the transcript from our roundtable panel of investment professionals – and 12 tips they’re currently tipping. The report also analyses key assets, including property, oil and the countries whose stock markets currently offer the most value.