UK economic outlook worsens as income inequality rises
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Growth in UK manufacturing and services activity has plunged to a 15-month low, fuelling the risk of a recession. Business activity has hit its lowest level since January 2021, when the country was in full lockdown. The UK composite purchasing managers’ index, an indicator of overall economic health, fell sharply to 51.8 in May, down from 58.2 in April.
Chris Williamson, chief business economist at S&P Global Market Intelligence, said the results hinted that “worse is to come”. He added that companies cited an increasingly cautious mood among households and business customers linked to the cost of living crisis, Brexit, rising interest rates, China’s Covid lockdowns and the war in Ukraine.
Despite a tight labour market, UK income inequality is on the rise with pay growing fastest for the highest earners, while those on the lowest incomes are most adversely affected by soaring inflation. Recent payroll data from HM Revenue & Customs, which include bonuses, show that for the top 1 per cent of employees pay rose by more than 7 per cent in real terms between December 2019 and March 2022. For the tenth lowest paid, real terms wage growth was just over 2 per cent.
The acceleration in pay at the top of companies is a sharp reversal of the trend in the years leading up to the pandemic, when earnings were growing fastest for the lowest paid, partly owing to rapid increases in the UK’s minimum wage.
There is also the problem of price increases outstripping salary gains, even in America’s hot labour market where companies are willing to offer more competitive and higher wages. Over the past year, prices for urban consumers in Atlanta, for example, are up 10.8 per cent, more than the 7.9 per cent increase across the country as of April, according to the Bureau of Labor Statistics. The agency’s latest data show that real hourly earnings, adjusted for inflation, are down 2.6 per cent year on year.
“We have this situation where it’s not really worthwhile to participate in the labour market. It’s expensive to go to work, especially if you don’t make a lot and you have to find childcare,” said Nela Richardson, chief economist at payroll processor ADP.
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Need to know: the economy
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