2023-05-09 09:16:10
The decline in living standards in Britain is accelerating: inflation is eating into wages
British workers are poised for a bigger hit to living standards than their peers in other advanced economies this year, according to a survey of financial professionals and retail investors, conducted by a Bloomberg research unit.
Inflation will outpace wage increases in the UK to a greater extent than in any other G7 country, the latest Markets Live Pulse survey of 631 respondents shows, with Italy coming in second. No wonder Britons are feeling the pinch, many sectors are hit by strikes, and wages adjusted for price growth are down more than 3%, according to the Office for National Statistics.
Prices of basic items such as energy bills and groceries have risen faster than the current headline inflation rate of 10.1%, which is boosting the use of supermarkets and food banks. Bank of England economist Howe Bell found himself in a bind last month when he suggested that Britons “need to accept” that they are poorer rather than trying to shake off the effects of inflation.
In Italy, however, things are worse, where real wages have fallen at a rate of close to 6%. The fact that respondents see the UK as a leader in the race to the bottom indicates the belief that the UK’s inflation problem will remain more severe than that of other countries, and that the current pace of wage growth may not continue in a hot labor market that is starting to cool.
The gloom over the UK’s prospects extends to the outlook for the housing market. Canada, where prices are already down 16% from their 2022 peak, is expected to experience the largest decline in house prices in the G7 this year in nominal terms, according to a Bloomberg survey. The United Kingdom, where prices have fallen by regarding 3% so far, according to Nationwide data, comes in second. In third place is the US, where prices are still surging, up 2% year-on-year in February, according to the latest S&P CoreLogic Case-Shiller Index reading.
Certainly in terms of investment opportunities, both professional and private investors agree that homes are not the place to get your money in the UK this year. About 45% of respondents prefer the FTSE 100 large-cap index over other investments in the UK. Given the general lack of confidence in the UK’s economic outlook for 2023, this makes sense.
In one of the few significant differences of opinion between the two camps, professional investors are more bullish on UK bonds than private investors, meaning they expect UK interest rates to fall before the end of the year, which in turn indicates recession fears.
The MLIV Pulse survey also asked for ideas on ways to improve the UK’s economic prospects. Many of the respondents called for a new government, while an even larger number of frustrated people said nothing might be done to improve Britain’s situation.
More positively, another fifth advocated cutting or simplifying business and income taxes, while some took up the central theme of championing the City of London, suggesting that relaxing regulations or encouraging more investment by UK pension funds in equity or infrastructure would be Like a good idea.
Despite widespread fears that London is losing its appeal as a destination for new company listings, the capital is expected to dominate as a stock trading venue over other European cities in terms of size. The French stock market overtook London in terms of total market capitalization, in part due to the weakness of the pound sterling.
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