U.K. workers suffer spending power hit, raising pressure on May

Falling real-terms wages show challenge for PM

U.K. workers suffer spending power hit, raising pressure on May
A municipal worker sweeps the street outside the cabinet office in Westminster, central London, June 9, 2017. REUTERS/Clodagh Kilcoyne





LONDON (Reuters) — British workers are suffering from an increasingly tight squeeze in their spending power, data showed on Wednesday, adding to concerns about a slowdown in the world's fifth-biggest economy and to the challenges for a weakened Prime Minister Theresa May.

A fall of 0.4 per cent in wage growth in the three months to April, when adjusted for inflation, represented the biggest loss of real earnings for households since 2014, even as a joint record high proportion of people in Britain are in work.

Britain's economy withstood the shock of last year's Brexit in 2016, prompting some supporters of Brexit to say fears of a hit to the economy were overblown.

But growth slowed sharply in early 2017 as consumers felt the pinch of rising inflation caused by the fall in the value of the pound after the referendum.

Credit card firm Visa said on Monday it saw the first annual fall in spending by consumers in nearly four years in May.

Other rich countries around the world are also struggling with the phenomenon of low unemployment but weak wages.

But the challenge looks particularly acute for May and her minority government, which is still putting together a deal with a small Northern Irish party that will give her enough votes in parliament to pass legislation.

The opposition Labour Party won many more votes than expected in last week's election with its promises of measures such as the end to a 1-percent cap on pay increases for public sector workers and a higher minimum wage.

"Public sector workers have not had a proper pay rise since 2011," Dave Prentis, head of UNISON, a union which represents the sector, said. "The public sector pay cap must go."

Finance minister Philip Hammond is due to deliver his first speech since the election on Thursday.


Ratings agency Moody's has said the government might now slow Britain's push to lower the budget deficit, having already pushed back the target date for a surplus to the mid-2020s.

Hammond's predecessor as finance minister, George Osborne, said on Tuesday that the government's problems would "get a whole lot worse if it ditches fiscal responsibility."

Wednesday's data showing the worsening hit to earnings is likely to add to the view among the majority of Bank of England officials to leave interest rates on hold when they announce their latest policy statement on Thursday.

The BoE has so far seen no sign that inflation is pushing up wages which would create longer-lasting pressure on prices. It expects wages to rise by 2 per cent this year and pick up in 2018 and 2019, something many economists now say looks optimistic.

The central bank is widely expected to keep interest rates at their record low of 0.25 per cent on Thursday.

Sterling hit a day's low against the dollar after the data, while British government bond prices rallied, suggesting investors took the figures as a sign that interest rates would not be rising any time soon.

The weakness in pay has puzzled economists given the apparent strength of Britain's labour market.

The Office for National Statistics said the unemployment rate in the period between February and April held steady at a more than four-decade low of 4.6 per cent.

The number of people in work increased by 109,000 in the three months to April, taking the employment rate to 74.8 percent, a joint record high, the ONS said.

But economists focused on the weak wage data.

In nominal terms, wages grew at the slowest pace since February 2016, rising an annual 2.1 per cent in the three months to April and slowing from 2.3 per cent in the first quarter.

Economists taking part in a Reuters poll had expected wage growth of 2.4 per cent.

Samuel Tombs, an economist at consultancy Pantheon Macroeconomics, said the wage numbers appeared consistent with signs of rising underemployment.

"The wage figures are astonishingly weak," he said.


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