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May 17 2017

Glacial Wage Growth and Rising Inflation Tightens the Squeeze on Consumers

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Maike Currie, investment director for personal investing at Fidelity International, comments:

“Today’s UK wage growth figures show total earnings including bonuses at 2.4% for the three months to March 2017.

“With yesterday’s inflation figures showing CPI at 2.7% and expected to rise even further, prices are likely to outpace wage growth, tightening the squeeze on UK households. As each month rolls by we’ll be getting progressively poorer as the wages we are earning struggle to keep up with the prices of the goods and services we consume. Given that consumer spending remains the backbone of the UK economy, this is bad news for economic growth.   

“Many have pointed to wage growth as the ‘missing piece of the puzzle’. While there are more people employed in this country than ever before, the problem is that our wages are increasing at a glacial pace. That’s why we need our savings and investments to work even harder – rising inflation coupled with lower-for-longer interest rates, means savers are losing out in the long term if they’re leaving their money languishing in cash. This matters massively, as workers wait for that elusive pay rise.

“In the current environment, the stock market may provide a viable alternative to keeping your cash under the proverbial mattress and continues to be your best chance of generating a real return. Our calculations show if you had invested £15,000 into the FTSE All Share index five years ago, you would now be left with £23,790. If, however, you had invested £15,000 into the average UK savings account over the same period, you would be left with a paltry £15,122. That’s a difference of over £8,668.”

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