Slow income growth should be tackled with policies to improve productivity, a report suggests.
Graham Watson's insight:
The Institute for Fiscal Studies has called for the next government to focus on boosting growth via increased productivity with a specific focus on boosting living standards. Their research suggests that in the UK, there's been exceptionally slow growth of median and working-age incomes in the UK relative to the US and Germany.
Central banks are keen to blame the surge in inflation on anyone but central banks
Graham Watson's insight:
Larry Elliott writes in the Guardian about the current bout of inflation and, rightly in my view, turns the tables on the Bank of England. Instead of asking for workers to show restraint in their pay bargaining, he wonders about the extent to which the Bank has to accept the blame for inflation as a result of the conduct of monetary policy during the pandemic.
He suggests that the adoption of QE and the printing of money were inevitably going to stoke inflation at some point in time, and instead of concentrating its ire externally, there should be more soul searching closer to home.
With prices soaring but wage rises still well below inflation, employees in the UK are getting the rawest deal in Europe
Graham Watson's insight:
Phillip Inman's piece in today's Observer highlights the growing inequality of income distribution between firms and workers, arguing that the current crisis has continued to see returns to capital rising and returns to labour (i.e. wages) being squeezed, with many workers, especially in the public sector, seeing real incomes falling.
In this environment, the Stock Exchange reaching an all-time high looks like a sick joke, given that British workers are losing out, both in real terms and relative to workers elsewhere. No wonder so many of them are striking.
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Total retail sales jumped by almost 7% but price rises meant shoppers bought less but spent more.
Graham Watson's insight:
It seems that retail sales have proved remarkably resilient in December, with like-for-like sales standing up to pressure on household incomes, although higher prices helped cushion the blow.
Longer term, the Barclaycard data about higher spending on utility bills imply that consumer spending is going to be squeezed in the months ahead.
Cost of living crisis forcing families to cut back on eating out, holidays and other discretionary items, survey finds
Graham Watson's insight:
Who would have thought that 2023 and the cost of living crisis would see two-thirds of consumers cut back on non-essential items? Well, brace yourselves, it's going to happen as recession looms large.
Anticipated increase in interest rates will turn the screw on mortgage holders and businesses
Graham Watson's insight:
Phillip Inman argues that the current rate of inflation is still problematic, not least in its effect upon real incomes, and he also notes that recent changes to consumption habits, reflected in changes to the consumption bundle mean that this is likely to persist into 2023.
Equally, the response of the Bank of England in raising interest rates is going to affect both mortgage holders, and those rental landlords with mortgages, who are likely to pass on rising mortgage costs in the form of higher rents.
The UK government’s amateur grandstanding will end in a humiliating climbdown, says Guardian columnist Polly Toynbee
Graham Watson's insight:
Polly Toynbee writes on the current wave on industrial action, and whilst I don't agree with all of what she says, it's an interesting attempt to reframe the narrative surrounding this.
To my mind, it is clear that the government are stoking the current disputes in the hope that come the 2024 General Election, they will be able to play the union card, in arguing that voting Labour will effectively be handing control of the economy to the trade unions.
The reality is that all of those striking have seen their real incomes decline, the proposed pay deals are well below those being offered in the private sector, and many of them were promised better pay deals by former Prime Minister, Boris Johnson, during the pandemic. Of course, like any of his promises, he probably had absolutely no intention of fulfilling them.
So don't buy the demonisation of the trade unions, and think about each on a case-by-case basis. For example, the rail unions certainly have a case on pay - however, the sector is overstaffed and inefficient; thus, there probably are grounds for compromise here.
Disposable household incomes will fall 7% and are not likely to recover for six years.
Graham Watson's insight:
The OBR's take on the next two years make for exceptionally grim reading: disposable household incomes down by 7% and not expected to recover for six years. Wowsers!
Of course, the prospect of a recession is even worse for those on low incomes, and I'm struggling to see why any young undergraduate would, out of choice, want to enter public sector employment given the rates of pay growth there.
Inflation - a measure of price rises - inched up again in September, matching the 40-year high seen in July.
Graham Watson's insight:
Inflation is up again, fractionally, reaching 10.1% in September, the highest level for 40 years - apart from July, of course.
This has been driven by energy bills and food prices - up by 14.5% year-on-year - and represents a cut in real incomes although, of course, your personal rate of inflation may differ from this.
Below-inflation rise would save exchequer tenth of £40bn to be given out through tax cuts, says thinktank
Graham Watson's insight:
Lots of talk about the public finances, triggered by the mini-Budget and the urgent need for spending cuts to balance the books and reassure investors. As a result, many have wondered about how the government is going to cut spending, with some thinking that they are going to link rises in benefit payments to average earnings rather than inflation.
If such a move went ahead - and the Prime Minister's denial that this was going to happen during PMQs yesterday is no guarantee that it won't - it would represent a £1,000 decline in real incomes for the poorest families in the UK according to the Resolution Foundation.
To be honest, I feel for the Prime Minister to some degree - she's rather carrying the can for her predecessor's sins.
Talk on picket line in Felixstowe and high street in Ipswich says new PM has just weeks to tackle crisis
Graham Watson's insight:
Richard Partington looks at the implications of the ongoing cost of living crisis for UK households, noting that real pay is failing to keep pace with inflation, and the distributional implications of rising prices, as well as the implications for inequality. It is this that is seen as the trigger for the recent wave of strikes in different sectors of industry, and the effects of the cost of living crisis have been exacerbated by previous years of austerity.
Study shows pay rises could fall behind inflation by 8% later this year, an unprecedented drop in living standards
Graham Watson's insight:
The latest TUC research suggests that we're on the point of experiencing the biggest fall in real wages for a century. And if that happens, then it's fairly self-evident what this implies for economic growth.
Analysis: Figure is being generated by factors outside Britain, and households and firms can do without burden of higher interest rates
Graham Watson's insight:
Phillip Inman's response to today's inflation figures - and he has a point, to a certain extent. Many of the sources of inflation are external, but some are not - notably the labour shortages that have been directly precipitated by Brexit - and this is part of the reason why UK inflation is higher than European inflation.
That said, it seems that if you dig into the figures, then core inflation and underlying service sector inflation are both far lower than the headline figure . And combine this with the expectation that consumer spending is going to be squeezed in coming months by falling real incomes and the case for sizeable rises in interest rates looks weaker.
Leading thinktank sounds alarm over cost of living crisis with poorest £4,000 worse off in 2023 than before Covid pandemic
Graham Watson's insight:
The National Institute of Economic and Social Research thinks that the Prime Minister might have over-reached himself with his pledge to halve inflation by the end of the year.
Having initially made the pledge in January, when inflation was 10.1%, the are of the view that core inflation is going to remain stubbornly high, such that even by the end of the year, inflation is going to be at 5.4%.
This might look like he's only just missing the target but inflation imposes costs on society, not least on real incomes and, by definition, living standards.
Huw Pill, chief economist for the Bank of England, says asking for pay rises contributes to inflation.
Graham Watson's insight:
I 'love' reading articles like this where extraordinarily well-off individuals lecture everyone else on how they can behave. In this case, the Chief Economist of the Bank of England and former chief European economist for Goldman Sachs effectively tells workers that they shouldn't be expecting pay to keep pace with inflation.
It shows a remarkable degree of self-regard and lack of empathy.
Concerns mount over cost of living crisis as November figures show additional £1.2bn borrowing on cards
Graham Watson's insight:
The extent to which the cost of living crisis is putting a strain on households in made clear in this article that highlights the fact that credit card borrowing reached its highest monthly level since November 2004.
There was an additional £1.2bn added to credit cards in November, with incomes falling and consumers trying to pay for Christmas.
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The below-inflation increase in regulated fares will take place in March, the government said.
Graham Watson's insight:
The annual uprating of rail fares is always controversial, if only because since 2010, rail fares have gone up by 58%, or twice as fast as wages. However, this time the 5.9% rise is being sold as not too bad, on the grounds that had the government followed the formula that exists to calculate rail fare increases, based on July's RPI figure, which was 12.3%.
And yet, the benevolence of the government extends as far as to override one independent calculation - but not others, such as independent pay review bodies. Additionally, notice that the 5.9% increase only applies to regulated fares, which only represent 45% of all rail travel in the UK.
Rail disruption and another Royal Mail walkout - what you need to know by the BBC’s Zoe Conway.
Graham Watson's insight:
A fascinating article - if only because the choice of image isn't accidental, and I think unfair on striking workers. Why not show what's happened to the real pay of nurses, relative to private sector pay? However, this is a classic example of shaping the narrative - and I don't like it.
However, this Zoe Conway article details exactly what strikes are taking place this week, but it doesn't show what's happened to real pay for public sector workers, both in general terms and relative to the private sector.
Wages rise at their fastest rate in more than 20 years, but still lag behind the soaring cost of living.
Graham Watson's insight:
The cost of living crisis has seen a significant fall in real wages for many, and some interesting sectoral shifts, with care sector workers leaving the profession for more lucrative positions with online retailers, in supermarkets and hospitality.
Factor in other complications - the disparity between public sector and private sector pay, and the shrinking of the UK labour force and it is clear that there is considerable disruption still to come.
The union body says UK families are at breaking point as pay fails to keep up with rising prices.
Graham Watson's insight:
If it's conference season, the major parties have met, the Lib Dems have hired a private function room in the back of a small pub, and now it's the Trades Union Congress' turn.
The main theme of the speech by its boss, Frances O'Grady is the squeeze on real wages for workers, contrasting a falling share of national income going to labour and a rising share going to shareholders in the form of dividend payouts, and the rising income inequality associated with this.
And to be fair, she's got a point - it seems as though real incomes haven't been squeezed as consistently since the Napoleonic era - and yet, for all that the current government are looking at restricting the ability of trade unions to strike.
Incoming prime minister’s only priority over next few weeks should be to avoid meltdown
Graham Watson's insight:
Larry Elliott's take on the current state of play: a baked in recession, but the new Prime Minister with some policy space to determine the length of the recession via the appropriate policy choices. That said, unsurprisingly, I don't detect an awful lot of optimism from the author.
Annual income survey finds national minimum wage will often fail to cover even a ‘no frills’ lifestyle
Graham Watson's insight:
The Joseph Rowntree Foundation's Minimum Income Standard survey has revealed that many people are going to experience extreme hardship in the months ahead as falling real incomes mean a squeeze on spending.
The final two candidates for prime minister have some fundamental decisions to make over the economy.
Graham Watson's insight:
Faisal Islam outlines three key areas that the Conservative leadership candidates must answer - how are they going to tackle energy bills, how will they protect workers' real incomes and what are they going to do to protect peoples' pensions.
All pressing issues, no doubt, but rather short-termist...
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The Institute for Fiscal Studies has called for the next government to focus on boosting growth via increased productivity with a specific focus on boosting living standards. Their research suggests that in the UK, there's been exceptionally slow growth of median and working-age incomes in the UK relative to the US and Germany.