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Sancho Panza

Uk Families Face 'lost Decade' Of Wage Growth

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IB Times 29/9/14

'UK families face a "lost decade" of real wage growth, which will keep consumer spending down, according to the Ernst and Young Item Club.

The research, which analysed Treasury figures, found that annual wage growth over the next three years will remain well below the 4.5%-5% rates typical before the financial crisis of 2008.

The report warned that this will lead to a slowdown in the pace of consumer spending growth, which is only expected to increase by just over 2% next year and in 2016.

EY Item Club said this is a significant reduction on the average annual growth rate of 3.7% seen in the pre-crisis decade.

"Total household incomes have strengthened because more people are in work but individuals do not have extra money in their pockets," said Martin Beck, senior economic advisor to the EY Item Club.

"Real wages are being held back by strong growth in the supply of workers and the fact that firms are facing increased non-wage costs, such as new pension schemes.

"We expect this trend to continue for several years to come and it will be mirrored with a slowdown in consumer spending growth."

The research also forecasted that the outlook for food retailers will remain challenging.

Consumer spending on food and non-alcoholic drinks is expected to grow more slowly than consumer spending overall, with growth averaging 1.5% per annum over the next five years.

"The upturn in the economy alone is not going to restore the fortunes of the retailers," said Julie Carlyle, head of retail at EY

"Instead new business models, better reflecting changing consumer shopping habits, need to be embraced.

"More than ever before consumers are looking for real value for money and retailers need to recognise in order to convert increased spending into profits."

The figures come after the Office for National Statistics regular pay for UK workers grew at a rate of 0.7% in the three months to July, against Consumer Price Index inflation of 1.6% in the year to July.'

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This is the same item club that predicts that we are in a recovery? or the one that said in 2008 we were heading for future growth? Unfortunately, what ever any sooth sayer says is adopted by the people who have a cognitive bias to the result. Let's think for ourselves.

Its fairly obvious we borrow too much; pay too much in pensions than we can afford and our house prices are too high for sustainable "good growth" i.e actually productive assets not renting space at ever increasing valuations. These are all symptoms not the disease.

So the questions are -

1. why are these things happening?

2. how do you protect yourself if bad things happen?

3.what can we do individually to at least try and head towards repairing it?

So here's my two cents

1. The quest for resources through debt has become increasingly corrupted by a political and financial elite who use it wield power rather than manage the economy Most people barely understand and it frustrates a minority of financially literate academics who have little power individually to change anything in the system.

2. Save and live within your means. Buy a house if you have to but make sure you understand your rationale and your re-payment because debt is always something the little people need to pay back. Realise that life is less about buying things and more about relationships; achievements; striving to do something that creates something that you are passionate about. Think of the one or two things that mean that you no longer think of the things on this website. Maybe its building a car; xbox games; or spending time with your family; or gardening? Its different for everyone. Basically control your controllables. Let the uncontrollables go to some extent as you can't really change them until there is a wider human trend that helps you do that.

3.. Voting for a ridiculous party would be start. This would scare the political elite into promising more to buy votes and ultimately cause a collapse in confidence within bond markets. Also, I would aim to devolve my association from taxes as much as I can, finding self employment, or aiming to start a simple shop/import export business that could allow my tax burden to go down. Lower tax collections from the middle class would immediately force "hard truths" to emerge. Frankly, what is the point in working unless you can have a standard of living that affords a reasonable house, time with your friends and family and the ability to perhaps dream of a better life for your children.

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Do we get an interest rate forecast too ? Carney has been talking about rate rises by watching wage increases but this research suggests they are a while away.

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The EY Stupid Club, the only independent forecaster allowed to use the Treasury's economic model.

London 23 April 2007

The UK economy is running at full tilt, according
to the Ernst & Young ITEM Club Spring forecast with growth
increasingly being driven by business. ITEM, which is predicting
growth of 2.9 % GDP for 2007, says that a rapidly expanding business
sector is now driving UK economic growth faster than household or
government spending. In the final quarter of last year business
investment shot up by 4.5 % to 13.5% cent higher than 12 months
earlier.

Professor Peter Spencer, Chief Economic Advisor to the Ernst & Young
ITEM Club, explains, “The corporate sector – particularly services -
is now the UK’s economic engine room. Monetary and credit conditions
are fuelling the economy by boosting asset prices and transactions.
Business is expected to provide the main impetus this year as buoyant
housing, stock market and M&A activity drive growth in the UK
financial and business services sector.”

http://www.accountantforums.com/ernst-and-young-item-club-spring-forecast-t134017.html

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