Economic Monitor: Real incomes begin to rise
01 September 20233 Minute Read
Harvir DhillonEconomist | BRC
Kris Hamer PhDDirector of Insight | BRC
Report Excerpt
Inflation continues to ease, with the CPI rate falling to 6.8%. Following strengthening nominal wage growth, real incomes have started to increase, albeit barely. Assuming inflation continues to ease below 5% into 2024, elevated wage growth is likely to offer some support for household incomes.
Retail performance over the past few months has been mainly led by weather-related trends, and despite a positive end to Q2, sales dropped considerably during the sixth wettest July since 1836. Input costs remain high, particularly with elevated wage growth rates, and this is implying stickier services inflation, despite goods slowing considerably more.
The impact of higher interest rates is weighing on the economy and will continue to do so over the rest of this year and into the next. Our anticipation is that rates are held at an elevated level at least until the Bank of England is convinced inflation has returned to the 2% target rate. This suggests servicing and borrowing costs for both businesses and consumers will remain expensive and stress on businesses (particularly those over-leveraged) will linger. Our central expectation remains that economic growth will broadly be flat over the next year but that the risk of inflation persisting has risen, particularly as oil prices begin to pick up again.
Harvir Dhillon, Economist at the British Retail Consortium
Overview
- GDP grew in June by 0.5%, following a decrease of 0.1% in May. Services activity grew, and the largest upward contributors being information and communication as well as wholesale and retail trade, seeing improving performance. Consumer-facing services grew by 0.5%, and within this the largest upward contribution came from retail outlets in addition to pubs, restaurants and bars.
- Inflation eased in July and the Consumer Price Index fell to 6.8%. Of the headline rate, 1.1% emanates from housing and energy costs, 1.7% from food and 1.2% from restaurants and hotels. Fuel prices rose for petrol but declined for diesel, with these figures registered when petrol was £1.43 per litre and diesel £1.45. Inflation is set to gradually fall over the course of the year.
- The BRC-KPMG measure of retail sales slowed to 1.5% in July, down from 4.9% in June.
- Between April to June 2022 and April to June 2023, the average regular pay (excluding bonuses) was estimated at £613 per week in nominal terms (not adjusted for inflation), higher than the estimate for a year earlier (£568 per week) and £477 per week in real terms (constant 2015 prices), higher than the estimate for a year earlier (£474 per week).