Squeeze on United Kingdom living standards eases as wages pick up

A woman shops in a supermarket in London. Reuters  file

But after more than quadrupling since Britain voted to leave the European Union in June 2016, there are now signs that this surge in inflation is beginning to level off. Consumer price inflation held at 2.6 percent year-on-year in July, unchanged from June and below the near four-year high of 2.9 percent struck in May, the Office for National Statistics (ONS) said on Tuesday.

"The knee-jerk reaction was to sell the pound on the back of softer United Kingdom inflation report", said Lee Hardman, a strategist at MUFG in London.

If inflation is 10%, then a £50 pair of shoes will cost £55 in a year's time and £60.50 a year after that.

"If you put this into context, employment is continuing to rise across the United Kingdom, industry seems to be gradually picking up and recent announcements by Google, Facebook and Snapchat to base themselves in London (creating thousands of jobs) demonstrates that London is still one of the great business cities of the world".

The eurozone economy is in a better position than it has been for years.

On the other hand, pensioners, who depend on a fixed income, watch the value of their assets erode.

The Retail Prices Index (RPI) is often used in wage negotiations.

This year, the euro improved with 12% against the dollar, as the improvement of the economic growth and the diminution of the worries regarding the accession of the populist movements. She said the question now turned to whether inflation would outstrip the BoE's 2% target by more than 1%, a level that would require the governor, Mark Carney, to write an open letter to the chancellor to explain why.

The producer prices data was slightly higher than expected with a 3.2% increase from 3.1% previously which suggests only limited short-term pressures from wholesale prices.

Across the Pond, July retail sales numbers out of the United Kingdom will be key for the Pound, which managed to recover to $1.29 levels off the back of the Dollar stumble late on Wednesday, though we don't expect any major upside in the Pound over the near-term, with today's figures forecasted to be on the softer side and a negative.

Earlier today, Eurostat released July's inflation figures for the Eurozone.

The pound extended losses and fell to its lowest in a month versus the dollar after data showed inflation was weaker than forecast, reducing expectations of a rate increase by the Bank of England.

"Although inflation is likely to start falling next year, we understand some families are concerned today about the cost of living", said a spokesperson for the Treasury.



Other news