22 June 2016 If the UK vote to leave the EU, many predict the Pound will fall significantly. Investor George Soros predicted it could be a bigger fall than in 1992 ERM crisis. Soros claims the Pound could fall by up to 20% (BBC) There are different reasons why the Pound may fall. Uncertainty. Leaving …
The latest stats for UK net migration show annual net migration of 239,000 (Q1 2022). This used to be roughly split between EU and non-EU migrants. But, since Brexit, there has been a big change with 437,000 immigrants from Non-Eu and 195,000 from the EU.
In Q1 of 2020, there were 437,000 annual immigration from Non-EU countries and 195,000 from EU Countries
Net migration of EU is now close to zero, with just 58,000, compared to 316,000+ from outside EU.
Reasons for migration into the UK
According to data by the ONS, the biggest reason for net migration into the UK is to pursue education studies. This accounts for 257,000 (Nov. 2014)
The second biggest reason is work related 228,000
The third biggest reason is to join family already living in UK or accompany partner moving to UK – 70,000
Other reasons 13,000 includes vague responses, such as ‘coming back to live’
Oil prices have a significant effect on the consumer price index, though the correlation between oil prices and inflation is less direct than it used to be in the 1970s. St Louis Fed estimates a correlation of 0.27 between changes in the oil price and inflation. In other words, a sustained 10% rise in oil …
Secular stagnation is a term coined to describe a prolonged period of lower economic growth. Economists, such as Larry Summers have written on secular stagnation arguing the world has entered a period of substantially lower economic growth. He points to factors, such as ineffective monetary policy and weak demand for explaining the lower rates of …
The budget deficit is the annual amount the government has to borrow to meet the shortfall between current receipts (tax) and government spending.
Net borrowing for the UK 2021/11 is £151.8bn or 14.8% of GDP [OBR – J511]
National debt or public sector net debt – is the total amount the government owes – accumulated over many years. See: UK national debt (May, 2022 – £2,347.7 billion equivalent to 95.% of GDP)
UK Borrowing
Budget deficit – annual borrowing
This is the amount the government has to borrow per year.
In 2000/01, the UK ran a budget surplus of £17bn or 1.7% of GDP
In 2009/10 at the height of the great recession net borrowing was £152 bn or 10% of GDP
Wage growth is a key factor in determining living standards, aggregate demand and inflation. If wages increase faster than inflation, then households will be able to afford more goods and services. Real wage growth = nominal wage growth – inflation.
In the post-war period, apart from short-lived recessions, real wage growth has been positive, growing at a trend rate of roughly 2%
2008-14
This period was one of the longest periods of falling real wages. It was due to:
Great recession
Depreciation in Pound Sterling, raising the price of imported goods
Rise in cost of living through rising energy/food prices.
Period of low-wage growth/low productivity
Research from the ONS stated that in 2012 real wages have fallen back to 2003 levels. (real wages fall)
Between 2014 and 2016, inflation fell and wage growth picked up. This led to positive real wage growth. The first sustained growth in real wages since pre-2007.
However, this is being overturned by the depreciation of the Pound post-Brexit referendum and continued low growth in nominal wages.
2020 onwards
The covid shock to the economy has led to volatile wage growth. With wages falling at the start of the crisis. Though the UK recovery has seen a shortage of some workers and a rapid rise in wages in the recovery. However, this recovery in real wages has been hampered by record inflation in 2022, with CPI reaching 9% – above nominal wage growth.
Until May 2008, wage growth was above inflation, causing positive real wage growth. But, since 2008, the UK has seen periods of negative real wage growth.
Wage growth since 2000
During the great moderation, we saw a steady period of rising real wages. This has been reversed since the prolonged recession of 2008 onwards.
Real disposable income per head
Real disposable income per head is income households have to spend after taxes and benefits. It is closely related to real wage growth but takes into account changes in taxes.
In 2007/08 real median disposable income was £37,310. By 2020/21 that was only a very small increase of £37,622 or less than 1% growth over 13 years.
Economic implications of recent wage trends
1. Muted inflationary potential. Some economists have worried that there is a risk of inflation from ultra-low-interest rates. During the great depression, we saw cost-push inflation, but this has evaporated because they were just temporary factors, such as rising oil prices, higher taxes e.t.c.
This shows the importance of wage growth for determining underlying inflationary trends. While wage growth remains low, there is muted potential for any long-term inflation.
Inflation is a continuous rise in the price level. Inflation means the value of money will fall and purchase relatively fewer goods than previously. In summary: Inflation will hurt those who keep cash savings and workers with fixed wages. Inflation will benefit those with large debts who, with rising prices, find it easier to pay …
Reader’s Question: Why does printing money cause inflation? Does this always occur? Summary If the money supply increases faster than output then, ceteris paribus, inflation will occur. If a government prints extra money, households will have more cash and more money to spend on goods. But, if the amount of goods stays the same, the …
