Britain is, of course, in the midst of a self-induced economic nightmare with people becoming ever poorer as our economy is wrecked by Brexit. We know that because hardcore remainers keep telling us so. But that just isn’t quite how it seems if you switch off the radio and TV for a moment and examine the contents of your wallet. With inflation falling to 1.7 percent this week and wage growth standing at 3.8 percent, real wages are growing at over 2 percent. With the exception of a brief period in the middle of 2015 this is the highest since before the 2008 crash.
There was a time when this would have been big news. Yet three hours after the Office of National Statistics issued its latest inflation release neither the BBC , the Guardian, the Telegraph nor the Times were carrying it prominently in the news sections of their websites – you had to go the business section to find out. It is a symptom of how our news cycles have been infected by Brexit. If some think tank comes up with a report predicting some dire outcome of our departure from the EU it will be treated to splash coverage. But when real economic data is published it gets pushed into the background.
This week’s inflation figure has huge significance. Coming just at a time when a lot of economic indicators seemed to be pointing towards an inevitable recession – not just in Britain but across Europe and North America, accompanied by a slowdown in China – a sharp rise in real wages suggests a very different outcome. Could a revival in personal finances be about to save the economy from recession?
This is exactly the opposite of what seemed to be happened in the months immediately following the Brexit referendum, when real wage growth was in decline while a strong pound was boosting the fortunes of exporters. The economy seemed to be rebalancing itself away from the consumer and towards manufacturing and exports. Now, manufacturing is weak and exports are not nearly so strong as you might expect, given the competitive price of UK-made goods on international markets.
In some ways it is disappointing that that rebalancing is not continuing – we could do with a stronger export market and a more balanced economy. Even so, strong growth in real wages is hardly to be sneezed at. It will come as a relief for service industries. We should expect more pizzas to be eaten in coming months, more beer to be drunk, more cinemas to be visited.
There are some who will continue to believe that Brexit is such a frightening prospect – a no-deal Brexit especially so — that it will stun consumers into tightening their belts. But that ignore something rather important. Over half the country voted for Brexit and opinion polls suggest that few would change their mind if forced to vote again on the issue. Why should people be frightened of a decision which they themselves made?
GDP figures for the second quarter showed a small fall in GDP. The set of figures for the third quarter will be looked at especially eagerly because a second successive quarter of negative growth would meet the definition of a recession. Yet don’t be surprised if, in view of growing real wages, we see a small recovery.