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Conundrum For Britain’s Workers


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What's going on?

Britain’s unemployment rate just hit its lowest level since 1975! But that good news was tempered by a big slowdown in the growth of wages…

What does this mean?

More and more people are getting jobs in Britain, including many people who had previously given up looking for work (and therefore weren’t officially counted as “unemployed”). Relatedly, the proportion of British people that are employed is at a record high.

However, on the other side of the coin, wage growth slowed to its lowest level in almost a year. At the same time, inflation has increased (i.e. prices are rising more quickly). Workers’ wages, after adjusting for inflation, are growing at their slowest pace in more than two years. Ouch.

Why should I care?

For the markets: Consumers have powered the recovery – hopefully they won’t trip up.

Like in the US, Britain’s economic recovery has been largely based on spending by consumers (e.g. on things like travel or smartphones). As wage growth slows down, logically so should consumer spending growth, especially as goods and services have been getting more expensive. If people spend less, it would be bad both for companies that sell things to consumers (think airlines, restaurants, etc.) and for the overall economy.

For you personally: It’s getting more tempting to borrow money to pay for stuff – which is often a bad idea!

Borrowing money is one way for people to keep spending in the face of slowing wage growth and faster price increases. Generally, “discretionary” things like most cars and phones are virtually guaranteed to depreciate in value, so usually borrowing money to buy them is not a great idea (and yes, this applies to non-Brits as well!).

Originally posted as part of the Finimize daily email.

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