World Economy

UK Worst for Jobs, Pay, Living Standards

The UK economy is overheating, which will result in the largest surge in inflation for many years, squeezing household budgets
Out of 30 countries considered “advanced economies”, the UK ranks 21st and CPI is currently only 1.2% year-over-year.Out of 30 countries considered “advanced economies”, the UK ranks 21st and CPI is currently only 1.2% year-over-year.

Britain ranks one of the worst advanced countries for employment opportunities, pay, living standards and social inclusion. That is according to the World Economic Forum, which released a major new report entitled “WEF Inclusive Growth and Development Report” on Sunday evening.

The report includes the “Inclusive Development Index,” which measures 109 countries for inclusive development. Out of these countries, 30 are considered “advanced economies” and within that sub-index, the UK ranks 21st out of 30, Business Insider reported.

“Over the past several years, a worldwide consensus has emerged on the need for a more inclusive growth and development model; however, this consensus is mainly directional. Inclusive growth remains more a discussion topic than an action agenda,” said WEF in the report.

“This report seeks to help countries and the wider international community practice inclusive growth and development by offering a new policy framework and corresponding set of policy and performance indicators for this purpose.

“The ultimate objective of national economic performance is broad-based and sustained progress in living standards, a concept that encompasses wage and non-wage income (e.g., pension benefits) as well as economic opportunity, security and quality of life.”

The report found that across 26 advanced economies, median income declined by 2.4% between 2008 and 2013. Norway ranked number one in the index as even living standards rose by 10.6% over that same time period, even though the economy grew only 0.5%. Luxembourg came in second and Switzerland third.

 Economy Overheating

The UK economy performed surprisingly well in 2016. Indeed, when looking across the OECD economies, it is hard to find a better performer on key metrics such as growth and employment. However, when looking beneath the surface, the UK economy is, in fact, overheating. Already on the rise, the result is going to be the largest surge in inflation for many years, squeezing household budgets and placing the Bank of England in a bind largely of its own making.

Already weak prior to the surprising Brexit referendum result, sterling declined sharply thereafter and has not recovered since. Year over year the pound is down about 20% against both the dollar and the euro. Combined with the sharp 70% rise in oil prices over the same time frame, UK energy and food costs are set to soar this year. These developments alone will push up UK consumer price index by 1 to 2 percentage points.

That may not seem so much, especially when CPI is currently only 1.2% year-over-year. But there is an even more troubling trend: following years of low wage growth, unit labor costs began to rise sharply last year. This is due in part to rising wages but also to persistently weak productivity growth. Labor compensation is the single largest contributor to inflation. Thus while some workers will no doubt enjoy pay rises over the coming year, when combined with the food and energy effects, it is unlikely that most will keep up with the rising cost of living.

In 2016 the Bank of England found itself persistently on the defensive, including over government claims that its aggressive monetary policies, such as quantitative easing, have exacerbated inequality. While there is evidence to that effect, a sharp rise in the cost of living will only serve to reinforce this perception.

The wealthy have ample means to protect their wealth from being eroded by inflation. The middle class and pensioners have little, if any. Anyone living on a salary is in particular trouble unless they receive a commensurate pay rise. And therein lies the greatest potential problem: workers who sense that they are falling behind are going to demand higher wages.


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