wages_inflation

For four years, between early 2010 and 2014, inflation was higher than growth in wages. And that hurt the economy, and it hurt business.

The gap is closing again, but so far slowly.

UK core inflation – that’s without food and energy – was also 1.6 per cent in December, but the difference is that UK core inflation has barely flickered in over a year.

Economists reckon that wage growth is set to reverse, maybe it is, but they have been predicting this for some time.

They are also saying that inflation will pass three per cent later this year. In that respect, they are more likely to be right.

So, what does this mean for UK consumer focused businesses?

It depends on wages. If they keep rising, as they have been doing for the last few months, then real wage growth may remain positive. But then again, if this happened, the Bank of England is more likely to increase interest rates.

But if wage growth slows, as economists predict, then that will hit consumption, but at least rates are more likely to stay on hold.