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Britons Are Living Beyond Their Means, Says Obr

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Telegraph 11/12/14

'Britons are living beyond their means more now than at almost any point over the past two decades, according to the head of the Government's fiscal watchdog.

Robert Chote, the chairman of the Office for Budget Responsibility (OBR), said real consumer spending over the past year had accelerated ahead of inflation-adjusted pay growth at its second fastest rate since the 1990s.

"If you look at the relatively robust pace of growth over recent quarters, that has been reflected particularly in terms of the contribution from the consumer, of people running down saving rather than having stronger income growth," he told the Treasury Select Committee.

Mr Chote said this pace of consumption relative to earnings growth was likely to be unsustainable. "We've assumed that it is not plausible [that this could continue]," he said.

"If you look at the last year, real consumption growth has been running further ahead of real wage growth than in almost any other year over the last 15 or 20 or so. Therefore, in our forecast the main reason we expect the quarterly pace of growth to slow into next year is that you see consumer spending moving more into line with income growth, and being less driven by [a] decline in saving."

The OBR believes the UK economy will grow by 3pc this year, before slowing to 2.4pc in 2015 and 2.2pc in 2016.

Household consumption growth is forecast to strengthen next year to 2.8pc, fuelled by a further decrease in savings. The household saving ratio is projected to fall to 5.4pc in 2015, from 6.6pc this year. However, consumer spending is expected to slow to 2.2pc in 2016 as the saving ratio stabilises.

OBR-REAL_3134240c.jpg

The OBR noted that consumption had grown by 2.1pc in real terms in the first three quarters of 2014, despite limited growth in real wages (Source: OBR)

Mr Chote also said that there had been a "structural deterioration" in productivity that meant British households would not enjoy the same living standards as they would have done had the financial crisis not occured. He added that rising productivity was essential for stronger pay growth.

In a separate speech, Ian McCafferty, a Bank of England policymaker, said raising interest rates now would help to "support and sustain" Britain's recovery while ensuring prices rise smoothly in the future.

Mr McCafferty said Britain's "remarkable" recovery over the past 18 months suggested that pay growth was at a "turning point", and that a sustained increase in wages was within sight.

Speaking at the Institute of Directors on Wednesday, Mr McCafferty outlined four reasons for raising Bank Rate from its record low of 0.5pc, and warned that even small miscalculations about the degree of "spare capacity" meant the point at which the economy could start to overheat may arrive sooner than policymakers expect.

He said raising rates now would ensure increases were "gradual and limited".

"I have argued that a small rise in Bank Rate would ensure that we act in good time, such that we can increase borrowing costs gradually, allowing consumers and businesses to adapt with minimum disruption. This, I have explained, is the best way of supporting and sustaining the economic expansion that is now well under way, while achieving our inflation target," he said.

While Mr McCafferty acknowledged that wage growth was "still benign", he said this reflected the increasing share of relatively low-paid jobs, which had pushed down average earnings.

He said the income squeeze in recent years had made consumers savvier, while the growing popularity of online shopping and low-cost hotels had prompted an increase in employment in warehouses, distribution centres and discount retailers, where pay is lower than the average salary.

As the recovery became more entrenched, this was likely to "dissipate" as workers began to feel more confident about moving jobs or asking for higher salaries, which would push up pay growth. He said the recent increase in wages "may well be the turning point we have been waiting for".

"Although volatile, three-month-on-three-month annualised private-sector regular pay growth picked up to 3.1pc in September," he said. "Accelerating nominal wages, together with subdued inflation, certainly augurs well for the recovery of real incomes and, as such, is welcome news for consumers, as well as necessary to ensure a sustained recovery."

UK growth is projected to slow over the coming quarters, but Mr McCafferty said the current level of slack in the economy, or room it has to grow without generating inflationary pressures, was uncertain, with minor changes to employment and productivity expected to have a "sizeable impact on when slack is likely to have been fully absorbed".

"Overall, I think the risks around our central profile for slack are such that we may well see the economy return to full capacity somewhat earlier than implied by our central forecast in the November Inflation Report," he said.

Inflation, as measured by the consumer prices index, rose to 1.3pc in October, from 1.2pc in September, but is expected to drop below 1pc at the start of next year. The Bank has an inflation target of 2pc.

inflation-mc_3133383c.jpg

Mr McCafferty argued that it was sensible for Bank policymakers to “look through” low inflation because it is driven by forces that are beyond the Bank’s control, such as falling oil prices.

"Inflation expectations remain anchored, and the weakness of wages, which in any case pre-dated the falls in headline inflation, seems to be coming to an end," he said.

Mr McCafferty has voted to raise interest rates by 0.25 percentage points since August. While he did not reveal how he voted at the December meeting, his comments on Wednesday suggest that he maintained his call for tighter monetary policy this month.


Martin Weale, another external Bank policymaker, said on Monday that the economy could overheat if interest rates were left on hold.

However, the seven other Monetary Policy Committee members, including Governor Mark Carney, are expected to have voted to keep rates unchanged in December.'

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I hope Chote gets a knighthood for his insight that people are spending more than they earn.
Gamechanging insight.

Noone else knows this.

Edited by Killer Bunny

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i wonder what could possibly be giving them the confidence to spend more money than they have coming in? Why, its almost as if they felt that there was a free cash machine, right there in their own house.

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Any amount of so called "watchdogs" didn't spot the developing economic crisis and Mr Chote of the OBR just joins the list of those on the government payroll stating what's obvious and then issuing vague Not Got A Clue Forward Guidance.

It's Christmas soon and there's a general election in the offing so now is the time for getting back to "normalcy" and the feel good factor - but the "watchdog" is on the alert :rolleyes:

If they aren't able to actually increase interest rates they can flannel on and pretend they're about to increase them - because of the recovery. It's a BoE scam in a long line of Christmas and pre election scams.

Edited by billybong

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i wonder what could possibly be giving them the confidence to spend more money than they have coming in? Why, its almost as if they felt that there was a free cash machine, right there in their own house.

+10

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Telegraph 11/12/14

'Britons are living beyond their means more now than at almost any point over the past two decades, according to the head of the Government's fiscal watchdog.

Never ! I think we all know that, so next tell us we need to limit debt and pay off old Debt.

Or tell this and the last Government!

Edited by awaytogo

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inflation-mc_3133383c.jpg

So is housing free?

Do we not need to pay for somewhere to live?

Can we live on the streets?

You could also eliminate food from the chart by saying that you could grow your own food.

You could eliminate fuel by saying that you can wear a thick coat and walk to work.

IT's all crap!

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i wonder what could possibly be giving them the confidence to spend more money than they have coming in? Why, its almost as if they felt that there was a free cash machine, right there in their own house.

I imagine its more a case of capitulation that confidence - people just dont give a sh*t anymore about whats going to happen in the future.

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"If you look at the relatively robust pace of growth over recent quarters, that has been reflected particularly in terms of the contribution from the consumer, of people running down saving rather than having stronger income growth," he told the Treasury Select Committee.

At any rate what's the point of him saying anything to "the Treasury Select Committee". He can flannel on to them as much as he likes and they'll do nothing constructive they're just time fillers wasting taxpayers' money. It's no better than talking to a bunch of dodos - or sheep even.

Edited by billybong

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How much does the OBR cost to run then? What's the annual budget?

Given how much the country is in debt and overspending every year I would say that running the OBR is living 'beyond our means'.

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IT's all crap!

Agree 100%.

And of course it is not just inflation. The banksters aren't the only one fiddling all the metrics.

Everything from the 'magical' UK recovery conjured up from Bulgarian tarts and drug dealers to the bogus unemployment figures where millions have been shoved from £55 JSA to £20 WTC. Even Gold is being manipulated. Expect another Soros to emerge when that dam pops!

You couldn't have put it more eloquently when you say It's all crap.

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I note that virtually all of the inflation at the moment is caused by this 'Other' category.

Such a shame that the authors did not drill down a bit further into what 'Other' means.

Still, I'm sure that it's a totally accidental oversight.

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How much does the OBR cost to run then? What's the annual budget?

Given how much the country is in debt and overspending every year I would say that running the OBR is living 'beyond our means'.

What is with this basic nannying which should have been said in year 2000? Now this new OBR and dodgy outfit guy. Let individuals make their own decisions, including their lust for mega-debt, treating saving as dead money in the bank at low interest rates, their ideals of upcoming champagne ripples of HPI, and when they can only see a BTL future and more pain on young people.

Cutbacks for everyone, apart from the Office for Budget Responsibility

Thursday 29 May 2014

The overseer of Whitehall budgets hikes its outgoings by 20 per cent

http://www.independent.co.uk/news/uk/politics/cutbacks-for-everyone-apart-from-the-office-for-budget-responsibility-9456842.html

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Britons are living beyond their means more now than at almost any point over the past two decades, according to the head of the Government's fiscal watchdog.

It's just bragging about the "recovery".

Not so long ago they were complaining that people weren't living beyond their means enough.

The other thing it proves though is that the so called recovery is extremely tenuous and dependent - and extra living beyond their means isn't what people voted for at the last general election.

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The other message to take from the telegraph article and the photo at the top of it is that you can spend an absolute fortune on extra carrier bags full of stuff and still look pretty scruffy.

So spend some more.

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I don't get that rents are rising. Much.

In E Herts (<30 mins from Liverpool St) family homes are at 2005 rent AP levels.

Edited by Killer Bunny

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Fuel and lubricants? I understand fuel but lubricants? does that mean booze or something a tory mp might use with an orange soaked in poppers? Im sure the average expenditure by an MP on lubricants is much higher than the average person!

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The chart also has "Headline Inflation" an implied acceptance that the headlines are rubbish and the chart isn't big enough to show real inflation.

From the chart the items "Education" and "Other" never (at least since 2008) have negative inflation but the rest of the items do.

Edited by billybong

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Debt breeds inflation.....you know you are going in the right direction when your net worth increases each month not decreases.......why does it require land and property keep people feeling they are working hard, when no work required only debt?

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Guest UK Debt Slave

'Britons are living beyond their means more now than at almost any point over the past two decades, according to the head of the Government's fiscal watchdog.

Err...........so is the government

The coalition is still spending like a drunkard on the EU, foreign aid programmes, quangos, etc etc etc........by the billion

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As the recovery became more entrenched, this was likely to "dissipate" as workers began to feel more confident about moving jobs or asking for higher salaries, which would push up pay growth. He said the recent increase in wages "may well be the turning point we have been waiting for".

"Although volatile, three-month-on-three-month annualised private-sector regular pay growth picked up to 3.1pc in September," he said. "Accelerating nominal wages, together with subdued inflation, certainly augurs well for the recovery of real incomes and, as such, is welcome news for consumers, as well as necessary to ensure a sustained recovery."

Like to see his source for "3.1%" though cause I cant find it.

Edited by R K

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