This week, we have learned a lot about the state of the economy in the UK, and what it means for the woman or man in the street.
Firstly, we have learned that inflation hit its highest level since 2012 in October, rising from 2.9%, past the psychological barrier of 3%. Bank of England governor; Mark Carney, has warned that is is likely to rise further.
The main reason that inflation has risen as much as it has is of course Brexit; lest we forget, last June’s vote to leave the EU caused the pound to drop more than 13% against the euro, to a 31-year low, making imports far dearer, and pushing up the prices of nearly all goods produced outside of the UK, and especially fuel, food and transport costs.
This has made it very likely that the Bank of England’s Monetary Policy Committee will vote to raise interest rates for the first time in more than a decade in November, which means it will cost more to borrow – something that Britain’s younger generation are being forced to do more and more of – whilst pensioners will benefit from a hike in the state pension, by whichever is the higher of September’s consumer price index inflation rate, average earnings, or 2.5%.
Secondly, although unemployment levels are now at a 42-year low of just 4.3%, wage growth is barely moving. Average regular wage growth, excluding bonuses, rose by 2.1% in the three months to August, however once inflation is taken into account, in real terms wage growth fell by 0.4%.
This is the sixth consecutive month that Britain’s economy has experienced a fall in inflation adjusted wages, which, in an ironic twist, means that economically speaking, the MPC has no justifiable reason to raise interest rates – and that raising interest rates is likely to trigger a further fall in the value of sterling.
It all spells trouble for the average British citizen – consumer prices rose in September at their fastest annual rate for more than five years, whilst the Trade Union Congress (TUC) general secretary Frances O’Grady observed that “pay packets are taking a hammering; Britain desperately needs a pay rise. Working people are earning less today in real-terms than a decade ago.”
The underlying truth behind the fall in unemployment level, many analysts argue, is that many people are working “gig-economy” style jobs; think Deliveroo delivery riders, or zero-hours contracts, which are massaging the official figures, whilst providing little or no support to workers struggling to find the right kinds of roles, and being forced to work in more unrewarding, poorly paid roles.
Additionally, workers are finding it hard to “add value” to the companies they work for – many feel that this is due to underinvestment by the government in infrastructure that would help companies become more productive entities.
It seems that in the UK, you can have any job you wish, so long as you don’t expect it to pay too well. And that is a problem that we may have to put up with for a few years yet.
Despite the fact that there is widespread public dissatisfaction with the decision to break with Europe, the Conservative government are determined to press on and “deliver the will of the people”.
What we are experiencing now economically was perhaps all too predictable, but it does not make it any easier to stomach.
The Resolution Foundation, a UK Trade Policy Observatory, has suggested that we should expect further price rises of around 10% on goods such as clothing, footwear, beverages, and tariffs on dairy products to rise by as much as 45%, and 37% for meat products, resulting in an expected increase in annual spending for an average family of £260.
There is an increasing clamour by the public to try to overturn the Brexit decision, which looks more likely now than at any time since the referendum, but while we wait for the politicians to make their cases, what can the average family do to get through these tougher times?
The answer may lie in technologically disrupted services. On the one hand, modern day “startups” – the likes of Deliveroo, Uber, and Amazon, are part of the problem, failing to pay sufficient tax to the UK government, look after workers’ rights, or by closing down the operations of more traditional firms.
But this could be a roadbump on a path that ultimately leads to a much smoother ride for all of us.
Take financial services. Many people will be aware of the rise of the “Challenger banks”, such as Starling Bank, or Monzo, that are digitalising banking, and operating in a more nimble and agile manner than traditional banks, helping them to undercut the big bank’s fees.
Then there are savings apps, such as Curve, or Mint, that make it easier for individuals and families to budget, save; by sweeping a specified sum of money into a savings account automatically every month; and not make unnecessary purchases; such as subscribing to a new service and then forgetting all about it, and losing a chunk of money via Direct Debit every month.
And finally, of course, money transfer services such as Azimo, Revolut, TransferWise and WorldRemit are making overseas payments cheaper – great news for holidaymakers, property businesses, businesses paying for services overseas, and indeed anybody doing any kind of business overseas. In the modern world, and even in a post-Brexit landscape, it will become easier and easier, and more and more necessary to operate with an international mind-set.
So, although it may take a while yet, the great white hope for Britain’s businesses, economy, individuals and families, may lie with finding cheaper and more efficient ways to carry out basic services. Saving money by doing the grocery shopping with Amazon, keeping track of your spending with a Monzo account, or saving time by storing and using data with apps, smartphones and tablets. All of these things not only help save money, but also make us more productive and competitive.
London is often thought of as the world’s number one fintech hub. As long as we hold on to that ranking, we are entitled to believe that Brexit and its fallout will one day be seen as just a bump in the road. And the good thing is, the technology is already here!