What's going on?

Prices in Britain are going up faster than wages� �and global low wage growth has something to do with it.

What does this mean?

On Wednesday, data was released showing that wages in the UK have increased 2.1% over the past year. That might not sound terrible, but inflation is higher (2.9% versus last year), meaning people can�t afford to buy as much stuff � a situation that is neither good for individual Brits nor the overall economy, two-thirds of which is driven by consumer spending.

Perhaps more importantly, there appears to be very little upward pressure on wages, despite lots of people being employed (employment in the UK is at an all-time high). This is a global phenomenon. Some argue that, sooner than later, low unemployment will cause wages to increase as companies compete for workers, but the longer it takes for that to happen, the more that argument falls flat.

Why should I care?

The bigger picture: The economy is in a catch-22 � it may need something else to snap it out of its funk.

If people aren�t getting raises, then it�s very difficult for them to increase their spending, thus limiting the profits of many companies and the amount that those companies can pay their workers. So it�s, to a large extent, a circular problem. Another way in which wages would increase much faster is if workers� productivity were to increase more quickly (e.g. people are more efficient, typically with the help of technology). However, productivity growth is declining (click here for more background).


For markets: Companies that sell �discretionary� products are at risk.

As our wages, after accounting for inflation, fall (in the UK) or rise more slowly (in the US), we tend to pare back our spending. That means less eating out, cheaper presents for friends’ birthdays and fewer trips abroad, etc. The data is consistent with this: retail sales in the US in May saw the biggest decline in 16 months (that includes online sales).