Inflation rise and wages slowdown hit cost of living

● Bank of England report forecasts squeeze on British households

Households are set for a cost of living crisis in the months ahead as wage growth slows and rising inflation hits spending power, the Bank of England has warned.

The Bank nudged its pay growth forecasts lower by just over 0.3 per cent a year on average, meaning workers will not see compensation for a jump in prices through income alone.

Real income, which accounts for tax and inflation, is projected to rise by 0.75 per cent this year, though the quarterly growth rate is expected to flatline. Meanwhile, real income forecasts for 2018 have been slashed from 1 per cent to 0.25 per cent, and from 1 per cent to 0.75 per cent in 2019.

The Bank’s latest inflation report – which outlines its economic outlook over the next three years – shows that shop prices will rise by 2.7 per cent by the end of the year, peaking at 2.8 per cent in the first half of 2018, before easing slightly to 2.6 per cent at the end of next year and 2.4 per cent in 2019. That is above the Bank of England’s 2 per cent target.

The forecast follows a significant weakening in the pound, which has fallen nearly 18 per cent against the US dollar and 10 per cent against the euro since the Brexit referendum, increasing the cost of imports.

However, the Bank of England’s interest rate-setting Monetary Policy Commit-

0 Bank of England governor Mark Carney said ‘the Brexit journey is really just beginning’ tee (MPC) said consumers are likely to keep up spending patterns for a bit longer despite the strain on income, forcing them to dip into cash that would otherwise be earmarked for long-term savings.

The MPC is now accounting for “a significant fall in the saving ratio over the next three years as consumers take time to adjust spending growth to weaker income flows”. The UK savings rate is expected to drop towards 4 per cent as a result.

While the Bank predicts a slight fall in gas prices during the first three months of the year, electricity costs are expected to rise in the second quarter. Stripping out fuel costs, the annual growth in import prices is expected to reach nearly 5 per cent by the third quarter.

British households are likely to be squeezed further by retailers, who have so far mitigated the fall in sterling through hedging practices that include buying foreign currencies in advance.

The Bank upped its forecast for gross domestic product to rise by 2 per cent this year, 1.6 per cent in 2018 and 1.7 per cent in 2019, as the UK continues to shrug off fears of a postbrexit vote slowdown. This is up from its November predictions for 1.4 per cent growth in 2017, 1.5 per cent in 2018 and 1.6 per cent in 2019.

But governor Mark Carney said the MPC’S stronger growth projection “doesn’t mean the referendum is without consequence” and said business investment would pull back, while consumers would be hit by soaring inflation and poor wage growth.

He said: “The Brexit journey is really just beginning. While the direction of travel is clear, there will be twists and turns along the way.”

The Bank has now raised its growth outlook twice in the last three months.

0 Edward Bruce. left, and commercial director Andrew Adam highlighted significant investment Insurance brokerage Bruce Stevenson has reported a double-digit hike in turnover during a “fruitful year” for the Edinburgh-based firm.

Turnover grew by 14 per cent to £5.9 million on the back of an 18 per cent increase in gross written premiums to £29.2m.

The firm, which also has offices in Galashiels, Glasgow and the North-east, said it had made a string of appointments across the commercial, private client and renewables units.

Edward Bruce, chief execu- tive of Bruce Stevenson, said: “These are an excellent set of results and reflect significant investment in our Glasgow and Borders offices.

“This performance is particularly pleasing as it is predominately driven by organic growth in our niche specialisms.”

Commercial director Andrew Adam added: “These new appointments have been created to support the continued growth of our commercial, private client and renewables divisions.”