The Guardian has reported that:
UK interest rates could start rising sooner than next spring, but "in baby steps", and are likely to settle at about 3% in a few years' time, the Bank of England's outgoing deputy governor predicted.
As I have noted recently, the average mortgage in the UK is about £96,000 and the average interest rate a little over 3.5% when base rates are 0.5%. I stress, these are averages. But for the person who enjoys this average mortgage a 2.5% rate rise, as Charlie Bean predicts, will see an increased annual outgoing of approximately £2,400 over the life of the next parliament. There is little chance that real wages will rise over this period.
How is that equation going to balance?
Whilst we all obsess about UKIP maybe one or two politicians would like to address this issue - because it is going to explode under whoever wins the next election. So what does Ed Balls think about it, because he certainly needs to do so, soon?
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You are being far too pessimistic. Real wages will grow at 1-2% for the next few years (assuming no negative inflation shock, like a doubling of oil prices due to some geopolitical disaster).
Why?
Following banking crisis the trend of falling real wages seems to have turned in last few months, employment growth still accelerating, many industries mentioning difficulty in finding staff (construction & engineering in particular), NMW likely to be increased at above inflation (plenty of political pressure for this), business confidence at multi-year highs correlates with higher wages, and even low-skilled jobs (surprisingly ?) seeing accelerating wages (retail & catering at +3.2% in last months employment figures).
So I don’t think 3-4% nominal wage growth (which isn’t unusual under “normal” circumstances) is particularly difficult to achieve over next couple of years. And with a strong sterling keeping a lid on inflation that translates to 1-2% real wage growth.
I’m aware that there are issues with the actual wages of the newly self-employed in jobs data but don’t believe their numbers are significant enough to impact overall wage numbers substantially. And, of course, the distribution of real wage increases may not be felt evenly amongst workers or geographically.
Who else sees it that way?
I’d rather trust Danny Blanchflower’s opinion
From what I’ve read of Prof Blanchflower’s recent stuff he doesn’t actually give any forecasts for future wage growth. He tends to emphasise that we are still a long way down from peak real wages (which is true) and that the feel good factor is still lacking. And he thinks GDP growth will slow from 2015 (which again is actually consensus). However that still leaves plenty of scope for rising wages.
So I’d be interested in which parts of my explanation for real wage growth you’d disagree with. It all seem pretty factual. Business confidence is at highs, some industries are citing skilled labour shortages, the NMW is rising at above inflation rates. And yes there are lots of self-employed and ZH contracts, but are these likely to increase from now or to diminish ?
Blanchflower and I share a view – and he quotes me – that there is such weak demand for labour and so much excess supply relative to it that the chance of real wage increases across the board is very low
Of course there will be exceptions – there always are – and you spot some
But one swallow does not make a summer
Look on the bright side. It’ll bring house prices down, won’t it? And I think we all agree that they’re too high currently…..
And you have no concern about the trauma on the way?
This started a long time ago. It was always expected that interest rates will increase. If people are intelligent enough to be able to go and purchase a house, and get a mortgage, then they should have known and been aware that it was a problem.
I am not so sure everyone manages good or successful DIY, but that is another matter.
There was trauma previously when the rates increased, there is always a trauma. I am not sure who really wants to pay their tax or interest bills.
I am sure you are able to remember a time when interest payments where higher.
I find your condescending attitude deeply offensive
The fact that NO politicians are addressing this fundamental issue speaks volumes.
perhaps it is because:
1) They don’t want to staunch the foreign , speculative investment in London property
2) many of them have their own greasy fingers in the property pie.
3) They don’t want to disturb the public hallucination that a property ‘ladder’ still exists.
4) It is the only measure of GDP growth left!
5) It is still a source of big money for the banks who, effectively, control government.
Totally agree with that analysis. And speaking of averages that hides the vast majority of folk who are struggling to ‘exist’ as things are let alone when prices go up. It will mean more Wonga loans, more defaults more petty crime for which we will all pay in the end. On a side note, when I drive around trying to be economical, you see huge vans driving at 80 MPH + who must be doing about 15 MPG but who is paying? We are of course with ‘salami’ economics a few pence here and there added to goods and services.
Back in the day, interest payments where 12%.