Economic Monitor: Real wage growth to improve

The economic outlook for the UK has improved over the last month, with several indicators pointing towards recovering household incomes and a gradual improvement in consumers' financial outlook. The BRC Customer Sentiment Monitor for April suggests that most consumers expect the economy to improve over the coming months. Momentum has held up, and the UK’s return to growth over Q1 appears to have continued into Q2.

Meanwhile, real wage growth has now eclipsed 2% and is likely to remain strong as we expect inflation to fall sharply in the Consumer Price Index (CPI) data this month. The National Living Wage uplift, effective from last month, will support nominal wage growth. Additionally, the recent cut to national insurance suggests the working population will have greater spending power, in the near term. On the cost of living, the lowering of Ofgem’s energy price cap last month will also offer a welcome reprieve for households’ bills.

However, geopolitical risks remain high. Oil prices have risen in recent months, and fuel prices at the pump are higher as a result. Disruption in the Red Sea persists, and many shipping operators are continuing to follow longer routes. However, shipping costs are around 40% lower than their most recent peak, though remain 200% higher than before the Israel-Hamas conflict.

• GDP grew in February by 0.1%, following upwardly revised growth of 0.3% in January. Services activity expanded by 0.2%, and the largest upward contributor was professional, scientific and technical activities. The biggest downward contributor was wholesale and retail trade, led by declines in the former. Consumer-facing services grew similarly, and sports activities and amusement and recreation activities provided the largest positive contribution. The biggest downward contributor was real estate activities.
• Inflation eased in March and the Consumer Price Index lowered to 3.2%. Of the headline rate, 0.5% emanates from food, 0.8% from restaurants and hotels and 0.7% from recreation and culture. Housing and energy costs are now pushing down on inflation, shaving off 0.2% from the headline figure. Fuel prices rose for both petrol and diesel, with these figures registered when petrol was £1.47 per litre and diesel £1.54. 
• The BRC-KPMG measure of retail sales growth accelerated to 3.5% in March, up from 1.1% in February.
• In the three months to February 2024, average regular pay (excluding bonuses) was estimated at £633 per week in nominal terms (not adjusted for inflation), higher than the estimate for a year earlier (£597 per week) and £483 per week in real terms (constant 2015 prices), higher than the estimate for a year earlier (£473 per week).