UK Economic Growth Is Under Pressure

UK Economic Growth Is Under Pressure - at www.moneyweek.com - the best of the international financial media

Consumers are suffering from rising inflation and constrained wage growth. Inflation is curtailing spending power. The Consumer Price Index is now at a nine-year peak and inflation is now higher than the growth rate of the economy. The pattern of price increases is strongly biased towards energy-related spending such as petrol, travel and utility charges and these are difficult to reduce in the short term. Extra spending on energy is also deflationary and requires savings to be made elsewhere. The impacts of higher tax, local tax and higher interest rates are also still having a negative effect on the consumer.

Wage growth is constrained for several reasons. First, unemployment has risen for seven consecutive months. Second, new entrants to the labour pool are holding down wages through competition, particularly at the lower end of the market. Third, global wages are being limited by competition from China in a growing number of areas. Finally, companies have poor pricing power in June, factory input costs rose by 12%, factory gate costs by 2.4% - meaning that margins are under pressure.

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