Chancellor Phillip Hammond
The latest consumer price inflation (CPI) data showed a sharp acceleration in prices increases. This will have a negative effect on real wages and real incomes, once inflation is taken into account. Most workers are facing flat wages and the poor, who rely on social welfare and are seeing freezes or cuts, will all be poorer as a result. Even worse, economic trends suggest that this problem will deepen.
Chart 1 below shows the medium-term trend in real wages. It uses single month data rather than the more customary rolling 3-month average data highlighted by the Office for National Statistics (ONS) to smooth out monthly fluctuations. However, the single month data can be superior in identifying key turning-points. As the chart shows, it seems likely we have entered a key turning-point, with a sharp downturn. Continue reading
It is often said that when all three political parties are locked together on the same idea, it is bound to be wrong. Given the Tory-LibDem coalition determination to continue austerity unabated throughout the next Parliament, it is sad to see Ed Miliband telling the NPF forum over this weekend that “we won’t have the money……Britain still has a deficit to deal with and a debt to pay down”. Of course the deficit has to be paid down, but the assumption that it has to be paid down by cutting public expenditure and benefits isn’t just harsh and cruel for its main victims, those on the lowest incomes, it is actually counter-productive. The reason for this is that the public debt is what remains after the totals of net lending or net borrowing by corporations, households and foreigners have all been added up. The latest evidence from the Office of National Statistics (ONS) shows that, following the austerity route over the last 5 years, public sector debt (the deficit), so far from reducing, is now likely to start rising. 
At a certain point this year GDP will finally recover its pre-recession peak, 6 years or more after the recession. This will be the longest British slump in living memory and the most severe downturn since the Great Depression.
Unnoticed in the austerity-driven travails following the financial crash lies another tectonic shift. According to research by the US bank Morgan Stanley, since the start of the ‘recovery’ in 2009-10 total real wages have risen by £105bn, but profits have soared by £330bn. This is the first time that profits have outperformed wages in absolute terms in 50 years. In Germany employee pay has risen by £31bn while profits have accelerated to £99bn. Things are even worse in Britain. Here profits are up £14bn, but aggregate real wages are actually down £2bn. This will get a lot worse still when low-middle income families are now officially expected to take an unprecedented 4-7% real terms cut in their living standards in this next year. 