Signs that corporate Britain is winning the inflation war can be found wherever you look.
Gaze beyond the ailing independent retailers and small-scale manufacturers that dominate TV and radio news coverage to the sales and profits of our largest businesses, where robust performance is the norm and promises of bumper shareholder payouts are being kept.
In response to this secure outlook for the majority of businesses, the UK stock market rebounded on Friday to near its all-time high, handing investors the perfect marriage of a steady income stream and enhanced wealth.
Crisis, what crisis? The view from the boardroom is rosy – managers seem to have found a way to pass on the extra costs charged by suppliers to customers.
That’s not to say three years characterised by the Covid-19 pandemic and the Russian invasion of Ukraine have been all plain sailing. It has been very tough to navigate, and thousands of businesspeople have worked around the clock to keep their organisations afloat.
However, the massive subsidies supplied by the government, mostly with no strings attached, meant they could weather the storm with their profitability largely intact.
Meanwhile, households are seeing their living standards crumble. It’s a decline that the Resolution Foundation’s latest assessment finds will amount to a 7% fall in disposable incomes – or £2,100 per household – over this year and next. This is a calamity, and will dwarf the 5% slump in disposable incomes that followed the 2008 financial crisis.
Mortgage holders who need to refinance their loan this year will find the hit to their incomes is swollen by an average £3,000 a year in extra interest payments after nine increases in the Bank of England’s base rate.
If there is a justification for double-digit price rises, it would surely be that employers are not only coping with sky-high energy bills and the rocketing price of raw materials, but also giving all employees 10%-plus pay rises. The rule of thumb is that wages represent 70% of a company’s costs, and so in the absence of a double-digit boost to pay, a double-digit boost to prices cannot be justified.
Next week, data from the Office for National Statistics will show how much earnings increased in the year to November, and City analysts expect the figure including bonuses will be the same as for the year to October, which was 6.1%.
This is more than four percentage points behind inflation, on which will we will also get an update next week. Those same City analysts expect the latest consumer prices index (CPI) for December will show that price rises remain in double digits, dipping only slightly, from 10.7% to 10.6%.
Figures last week from recruitment website Indeed.com show the situation for many workers is even worse. A glance at the jobs site reveals hospital trusts searching for qualified nurses with a pleading message and promises of excellent benefits – which would normally indicate rapidly rising wages.
Not for nurses. Pay for new starters has risen by just 2.9% over the past year. Existing staff are still waiting for the outcome of pay negotiations.
Maybe someone in the Department of Health has shown the health secretary, Steve Barclay, these figures, and that’s why he is backtracking on earlier determination to stick to the meagre recommendation from his pay review body of 4%.
Private sector workers don’t fare much better unless they are in the City of London, the tech industry or a business services sector such as accountancy. Average annual pay settlements at major employers are stuck at 4% and there is little momentum behind worker demands for bigger increases.
Indeed says its tracker of more than 7,000 distinct job titles and thousands of employment sub-categories shows average pay rises have fallen since June from 6.4% to 6% and are continuing to slide.
Contrast this situation with Germany, where Indeed says wages growth reached 7.1% in October while inflation was 10.4%; or France, where wages increased by 5% while inflation was 7.1%.
Most workers are suffering a fall in disposable incomes, but those in the UK are suffering more than most in Europe.
Could it be that British workers are pathetic negotiators, even compared with British retirees, who have made it plain to every government since the turn of the century that they will only vote for the party that makes sure their state pension rises at least in line with inflation and their private pensions are protected?
American consumers are slowly waking up to the massive rip-off that flows from monopoly capitalism, but UK consumers are allowing prices to be jacked up without justification. Unless they believe protecting the interests of international investors is a good reason to accept high prices and low wages, they need to act now.
