UK Inflation lower, but with ‘real’ earnings still in the news, what CAN be done?

[TheaSaurass]

Nearly every day in the news we hear about our salaries are annually worth less because of inflation.

UK earnings in ‘real’ (inflation adjusted) terms has been a general problem since our 2008 recession, and although a while ago finally went ‘positive’, even the lower than expected 2.6% UK inflation rate announced today, with UK average wages rising 2%, is still unwelcome news for all UK workers.

The UK is not alone, as although the Eurozone has finally seen a recent economic growth (and employment) bounce, they are not seeing much in the way of wage rises from a low approximate 1% annual level as they appear to still have what is called workforce ‘slack’ – which according to that link, the European Central Bank is concerned about, as sees little chance of the workforce conditions ‘tightening’ any time soon – as “the majority of new jobs created are in the services sector, where productivity gains are inherently lower, capping the potential for wage increases”.

So what can be done in the UK by the authorities to boost the pay packets of every worker?

• In the past when the Bank of England had a 2% inflation target, we would already have had interest rate rises to squeeze inflation out of the economy, bringing ‘real’ pay rates positive again, but I assume as some of the higher UK prices have been due to a (previously) weaker Sterling – and as the whole point of the target remit of the BoE is to help promote growth and employment – thankfully for the economy, they have not hiked the UK Base Rate, yet.
  

And considering in the decades before the financial crash our interest rates were usually up to 2% over our inflation rate, we have to be careful what we wish for hoping inflation will soon ‘inflate’ our salaries.

• The government can think about more tax cuts to help, but as nearly every government department is asking for money, even with the UK authorities already spending nearly £790 billion a year (including a current £48billion a year in interest payments servicing our National Debt – that is not really an option when we have so many uncertainties ahead - and that’s just the ‘known unknowns’, never mind the ‘unknown knowns’ like the recession in 2008/9.
  

So what else is there to now drive all wages higher to compensate us for inflation, that may, or may not, wash out of the system as Sterling trades close to $1.30, than $1.20 which could have more to do with President Trump’s problems than ours?

[TheaSaurass]

As the UK labour market availability finally begins to tighten, will UK Productivity finally improve/increase, and as a short-term consequence, will there be a workers higher wages, ‘YAY’?

Currently British recruiters (the Recruitment and Employment Confederation) are telling us that there is a shortage of workers here and it increased in July, apparently they say, made worse by the departure of EU workers since last year’s Brexit vote – not just in the higher skilled workforce, but in the medium skilled as well – which in the good old UK days SHOULD be good for higher wages, right?

Well according to REC data, while starting salaries recently rose as their fasted pace in a few years, and even hourly pay for short term staff increased as well, those rises don’t seem to have fed through to the broader measures of wage growth.

Furthermore a separate Bank of England regional agents survey of British businesses, shows that currently they are only planning to offer 2-3% annual pay rises ahead, DESPITE that shortages of staff, but the BoE remain optimistic that this will improve.

Manufacturers reported good orders but intend to meet increased demand via automation and other productivity gains, rather than further increase their workforce – which doesn’t look too good for increased wages either.

The UK problem with ‘real’ earnings (wage rises minus inflation) turning negative again is not just a UK problem, and even the EU have a similar problem with their labour market protections for those in work (with the apparent socioeconomic price of higher EU unemployment).

In conclusion; For those UK politicians citing the IMPROVEMENT of the UKs current low economic measurement of ‘Productivity’ as the be-all-and-end-all of increased UK wages right NOW, it appears that Productivity will first improve, before the higher than inflation wage increases feed through, even with a shortage of the UK’s available workforce.

[TheaSaurass]

Hi SoloD

I think there has been a lot of investment/focus on education and skills, as employers were complaining that too many of our youth were leaving full time education without a good grasp of the basics, and the very large increase in apprenticeships that has helped both their ‘work related’ skills sets, and reduced dramatically the large 16-24 year old unemployment rate, that was trending up from the mid 2000s.

On 'real wages' negative due to inflation, I reiterate that in the past the Bank of England would have increased interests rates until it squeezed inflation out of the system, and only those pesky savers would want that. ]

As to the economic measurement called Productivity, which in the past has been a good guide to future national prosperity, our low Productivity level appears to have baffled many since the great recession, including the Bank of England, but I was intrigued by my European Central Bank comment link in my OP, mentioning its hard to squeeze increases in Productivity if in Services – and around 80% of our national ‘output’ are Services.

So how can we increase Productivity?

Now I am no economist, but did read the Business pages of the broadsheets daily and get a Saturday F.T. (with a weekend to try and absorb it), so bear with me..

So lets pretend that the UK’s whole output were ‘widgets’, and looking at the composition of Productivity – where it is the business ‘input costs’ of making a single widget, including the costs of production, that forms the ‘output’ cost which is apparently the Productivity objective – so an open question, in 2017, HOW can the UK increase Productivity???

[SoloD]

Real wages can only increase if productivity increases. More investment in skills and education would be a start, but encouraging firms to invest is what is needed. Which is unlikely given the uncertainty of Brexit.