Inflation outpaces British wage growth

LONDON: British wage growth will not keep up with soaring inflation this year, according to economists in a Reuters poll who were concerned a consumer spending slowdown was underway.

Shoppers have been one of the main drivers of economic growth since Britain voted in June to leave the EU and any signs they are reining in spending will be a worry for policymakers.

Prices are expected to climb 2.6 percent this year, the poll of 60 economists taken this week found, yet wages will only rise 2.4 percent, crimping household budgets.

“While at least some pick- up in wage growth looks as though it is in prospect, we do not think nominal wage growth will rise as quickly as inflation, suggest- ing that real earnings growth will probably be fairly subdued,” said Ruth Gregory at Capital Economics.

“There are growing signs that the post-referendum strength in consumer spending is fading.”

British consumers are cutting back on non- essential spending as the impact of last year’s Brexit vote pushes up the cost of their day- to- day shopping, two surveys showed on Tuesday.

At the end of 2016 the economy sped up, data showed last month, but over the whole year it was weaker than previously thought amid signs the Brexit vote will increasingly act as a brake on growth.

Gross domestic product ( GDP) will expand 1.6 percent this year and just 1.2 percent next year, the poll found. It will grow 0.4 percent this quarter but only 0.2- 0.3 percent for the remaining quarters of 2017.

After the referendum, the Bank of England ( BoE) cut interest rates to a record low of 0.25 percent and expanded its asset purchase program.

Now policymakers are watching closely to see if households curtail spending as they decide whether the economy needs more monetary stimulus to spur demand or an interest rate hike to curb inflation.

None of the 60 economists polled expect any change to policy when the BoE announces its latest decision on March 16 and few forecast any change in bank rate until 2019 at least, despite inflation exceeding the BoE’s 2 percent target.