The UK was the only European country in the Group of Seven nations where real incomes adjusted for inflation fell in the third quarter of last year, according to the OECD.
(Bloomberg) — The UK was the only European country in the Group of Seven nations where real incomes adjusted for inflation fell in the third quarter of last year, according to the OECD.
Rampant inflation was to blame for continuing slide in household spending power, the Paris-based organization said, piling pressure on Prime Minister Rishi Sunak’s government and the Bank of England to get the cost-of-living crunch under control.
The figures underscore a widening gap between the rich and the poor and help explain why millions of public-sector workers have walked off the job seeking higher pay. Pressure is now on Sunak to settle the strikes by offering raises to workers on the lowest pay including teachers, nurses and ambulance drivers.
Across the 21 nations in the Organization for Economic Cooperation and Development for which there was data, real household income per head grew by 0.2% in the three months ended in September compared with the previous quarter. This was the first rise since the start of 2021, with nine of the countries recording an increase.
And while France, Germany and Italy were among the countries where households started feeling more flush, the UK floundered with real income slipping by 0.6%.
It was not alone in the G-7. Canada saw real household income fall by 0.5%, while in the US it remained flat.
But the UK is in a small club of OECD countries where real incomes haven’t yet surpassed pre-pandemic levels. Others in that group include Czech Republic, Denmark, Finland, Portugal and Spain.
The OECD noted that disposable income per head had increased by 9% in the UK in nominal terms between the final quarter of 2019 and the third quarter of 2022, racing ahead of Italy’s 7.9% and only sightly undershooting France’s 9.9%.
But this had been far outpaced by red-hot inflation. During the third quarter of 2022, the cost of living was still increasing. The UK Consumer Prices Index hit a 41-year high of 11.1% in October.
“High consumer prices in the United Kingdom over the past year have continued to undermine household income when measured in real terms, causing real household income per capita to decline by 3.9%,” the OECD said.
The figures also show the need for the Bank of England to bring inflation down. While inflation has slipped to 10.5%, it remains more than five times the BOE’s 2% target.
Officials at the central bank including Chief Economist Huw Pill and policy maker Catherine Mann have pushed back against the idea that rates are at a turning point, drawing attention to worries that tightness in the labor market will push up prices further.
(Updates with chart and details from the report.)
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