The Chancellor has welcomed a “major moment in the British recovery” as real wages outstripped prices in the three months to October. Real wages grew by 1.4% while prices increased by 1.3%. This improvement is to be welcomed and the timing is perfect, just as retail reaches the critical moment of the year. But how meaningful and sustainable is it?
The reality is that this has more to do with falling inflation than rising incomes. While wages are without doubt moving in the right direction, progress is slow and tiny. On the other side of the equation, inflation is falling, particularly in retail. This in turn reflects intense competition and relatively soft demand. And the latter suggests that a whisker more spending power is unlikely to translate into stronger retail demand.
The retail recovery of 2014 has been real but built on short term, unsustainable factors. Consumers have dipped into savings, have enjoyed a fillip to disposable incomes from PPI payouts and are now enjoying some help from falling petrol prices. To really celebrate, Mr Osborne needs a lasting recovery built on organic strengthening rather than fortuitous one off external events.