Following the British public’s vote to leave the European Union in the June referendum, a number of remain campaigners (now referred to as “re-moaners”) predicted that the UK economy would suffer significantly as a consequence of the Brexit vote. Indeed the Bank of England undertook further quantitative easing measures and reduced interest rates to the historic low of 0.25%.
However, despite all the gloom mongering, the UK economy has continued to perform well and the dominant services sector is now at a 17 month high after growing for the third month in a row. Therefore, the widely held expectations of a Brexit driven economic slowdown have simply not materialised. The question to ask is why? It could be that the economists simply got things wrong.(It would not be the first time). However, it should also be noted that household savings fell considerably throughout 2016. The household savings ratio has dropped to extremely low levels that have not been seen since before the financial crisis in 2008 as UK consumers appear to have engaged in both significant borrowing and spending during 2016.
The increased borrowing (and decreased savings) also reflects the fact that pay (especially in the retail sector) has dropped sharply (see Guardian article below). This sharp fall in pay is partly down to a rise in the number of more low paid temporary jobs.
If this trend is to continue, then it could cause problems for the UK economy in the near future as UK consumers with less pay will end up spending less going forward. One of the issues that Theresa May wants to address is the increased precariousness of low paid temporary jobs and she has appointed Matthew Taylor (a former Downing Street advisor to Tony Blair) to look at the ever changing workplace and try to come up with some solutions to make flexible (but precarious) employment work better for all. His commission is due to report in 2017. Any significant downturn in UK consumer spending and/or consumer confidence as a result of lower wages (and likely higher inflation) will undoubtedly increase the focus on employment practices and employment rights and perhaps shifting the balance back in favour of the UK worker. It is truism that all UK workers are also consumers and consumers are needed to continue to make the UK economy grow.
Advertised salaries fell 2.7% in the year to November, with the biggest drop in wages hitting workers in the retail sector, according to a new report. The average advertised salary fell to £32,221 in November from £33,118 a year earlier according to Adzuna, the jobs search engine. They were down 1.5% compared with October’s £32,725. The biggest annual drop in advertised salaries was in the retail sector, where the average fell by 17.4% to £21,769. Adzuna said the sharp fall was partly down to a rise in the number of more low-paid temporary jobs .