There’s one big outstanding question in my mind re the sustainability of the UK economic recovery. Agree that the economy is doing much better than it has done over the last few years, agree that the confidence has increased (both business and consumer) and agree that we are seeing a record amount of entrepreneurial activity in the economy (read start ups). But how sustainable is this growth given what I believe could hamper the consumer spending power over the coming months and years?
There are some key economic, policy and geopolitical changes that will hit the families’ real income. Interest rate rise is going to add to the monthly mortgage and other credit bills. The ongoing price wars by the supermarkets is unsustainable. The conflict in the middle east is, at some point, going to hit the oil production and supply.
All of the above and more (read recent price hikes in rail fares for 2015 and other inflation linked annual price rises) will have a significant impact on the disposable income of most families. Even more challenging would be the timing of of some / all of the above (potentially in quick succession of one another). Families will have to adjust and adapt their monthly spend in order to accommodate these which will in turn impact their ability to sustain the level of consumer spending we have seen since last couple of years.
The saving grace would be an increase in real wages – something that the working population has not seen for many years now. UK has become a hot spot for start ups in Europe and there has been a steep rise in the number of entrepreneurs over the last 2-3 years, a trend that I believe has been a result of the below inflation (or even stagnant) salary / wage rises.
Government, policy makers and businesses alike must ensure that the economy is well positioned to sustain these monetary shocks, specially given the probability of all of these happening in close proximity with each other.