Category: Economic Growth

Can Businesses Cope With High Wage Growth?

UK wages are said to be rising at their fastest pace for six years but what does this mean for SME businesses?

The UK economy at present is something of a mixed picture. On the one hand unemployment has risen while employment and wage growth are rising. It might sound strange that employment can rise while unemployment also increases yet there will be some areas hidden within the statistics which explain why this is the case including more people taking part time jobs and so on.

The big news from a business perspective however is the rapid growth in wages. As competition heats up for the best qualified staff it is inevitable that wages will be pushed up in some sectors and this can happen even if that sector is not doing so well such as the construction and manufacturing sectors – the latter feeling the ill effects of a strong pound.

Higher wages are likely to put a strain on businesses at a time when bank lending is constrained. If your business has been hit by a higher wage bill and the need to keep cash flow going why not consider asset finance? Our experts are on hand to guide you through the simple process of using your existing assets to consolidate your business.

UK economic growth hits fastest pace since 2010

Official figures this week are expected to confirm that the recovery gathered speed over the summer as the economy grew at its fastest pace in more than three years.

GDP in the three months to September is estimated to have surged 0.8%, according to economists. It would be the UK’s best performance since the second quarter of 2010, beating the strong 0.7% growth between March and June. The Office for National Statistics (ONS) will publish the official data on Friday.

The pace of Britain’s recovery since March has taken forecasters by surprise and triggered a surge in consumer confidence, surveys have found, despite falling real household incomes.

According to Deloitte’s consumer tracker survey, published today, households have become more positive about job opportunities and job security and are less worried about spending money on holidays and nights out. The accounting firm’s confidence index rose to -25% in the third quarter, the strongest reading in the two years it has been running.

Part of the improvement was due to an expected increase in property prices, which is raising perceptions of wealth.

Ian Stewart, chief economist at Deloitte, said: “Overall confidence is growing and has been for the past year. Less downward pressure on incomes, combined with renewed economic optimism and an improving housing market make for a story of gradually recovering confidence – notwithstanding the fact that the level of real incomes is continuing to fall.”

Average pay is rising at just 0.7% a year compared with the 2.7% rate of inflation, according to the ONS. However, house prices rose 3.8% in the year to August, lifting the average value of a home to a new UK record of £247,000.

Paul Tucker, the deputy governor of the Bank of England who retired last Friday, said he believed the recovery had gained traction because the £375bn quantitative easing programme was finally working. Previously, the stimulus was being smothered by fears about the eurozone crisis.

“I felt that as soon as [fears] receded, spirits would revive and the existing monetary stimulus would gain traction. And I think that’s what has happened,” he said.

Separate public finance figures on Tuesday will show that the recovery is helping the Chancellor make inroads on the deficit. Higher tax revenues and lower benefit spending has meant borrowing this year has been coming down faster than expected. Economists reckon this week’s figures will confirm the trend, putting the Government on course to borrow about £10bn less than the £120bn originally forecast for this year.

Household confidence has improved despite a tightening in living standards. Asda’s Income Tracker found that household spending power, at £157 a week, is currently £2 a week less than this time last year and £8 less than at its peak in February 2010.

“Weak wage growth was a key factor, up just 0.8% over the past year – the smallest year-on-year rise on record,” Asda said, while “the rising cost of energy continues to put pressure on household budgets”. British Gas and Scottish and Southern Energy have just increased fuel bills by more than 8%.

Weak levels of household income may prompted more shoppers to stay home in September as retail footfall last month fell 2.4% compared with last year. Springboard and the British Retail Consortium, which compiled the survey, said the decline may be explained by the warm weather, which “held consumers off from shopping for winter clothes” and as families saved up for “the Christmas rush”.

ONS figures on retail sales last week showed that there had been a 19.1% surge in online shopping in September, which does not show up in the footfall index.