IoD: Inflation spells squeeze on wages, but public finances perform better

Responding to today’s inflation figures, which show CPI hit 2.3% in February, up from 1.9% in January, Michael Martins, Economist at the Institute of Directors, said:

“Today’s higher than expected inflation figures, combined with last week’s less than rosy wage growth data, mean that real wages will likely have shrunk in the first quarter of 2017. The fall in sterling has translated into higher costs of essential items like motor fuel and food.

“The price of food for consumers increased for the first time in more than 6 months, likely reflecting the expiration of currency hedges that many food retailers had undertaken prior to the referendum. Other factors like a poor harvest in southern Europe and globally rising food prices had an effect too. The squeeze on disposable incomes will likely begin to eat into the UK’s consumption-driven economic growth in the medium-term.

“Public sector borrowing showed better progress. Tax receipts grew by 6%, driven by Government’s collection of the most self-assessed income tax and capital gains on record in January and February. As public sector spending is projected to continue to slow, this should translate into a reduced deficit and faster debt repayment, freeing-up money to counteract any Brexit-related economic slowdown, should any arise.”

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