Nick Clegg will warn today that “the squeeze on middle-income Britain has reached ‘a state of emergency.’” This is on the back of the fact that real wages have been falling since 2008. And, as Cities Outlook 2012 illustrates, incomes in some cities are being squeezed much harder than in others.
Undoubtedly 2011 has been a challenging year for the UK economy. Rising unemployment has forced more people out of work. But the position for many people in work has also deteriorated; poor wage growth, coupled with high inflation, has squeezed take-home pay.
Cities Outlook 2012 shows just how much wages have fallen between 2010 and 2011 across the UK’s cities. Even ignoring inflation, almost half of the UK’s cities saw a decline in the average wages paid to those working (see chart below). This has been compounded by price increases in 2011. While average wages in the UK increased by £4 per week (0.8 percent), inflation averaged around 5 percent. That means that the same pound will buy you less this year than it would have last year—your weekly paycheque feels smaller.
So when we factor in the effects of inflation, the average wages in almost all cities have fallen. In fact, only four cities (Milton Keynes, Grimsby, Southend and Worthing) saw a real increase in average wages. As the table below illustrates, even if your wages did rise on your paycheque, the increasing cost of products and services means that you can actually afford less. Ipswich saw the largest decline in ‘real’ wages; the average worker took home an equivalent of £54 less in 2011 relative to 2010.
So will the UK continue to feel the ‘big squeeze’ over 2012? The Bank of England expects a sharp fall in inflation over the year. But even if inflation falls, we could still see continued decline or stagnation in nominal wages. High unemployment means lower wages are offered for new jobs. At the same time, firms are offering less or no pay rises. While easing inflation will help, many of us may continue to feel the pinch over 2012.
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