UKAug 16 2017

Brighter UK wage data fails to boost consumer stocks

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Brighter UK wage data fails to boost consumer stocks
ByDavid Thorpe

UK wage and employment data has beat expectations but the market has not passed this confidence onto the likely beneficiaries in consumer stocks.

The rate of UK unemployment dipped to 4.4 per cent, from the previous 4.5.

Wage data was also positive, with people's take home pay rising by 2.1 per cent in June, better than the 2 per cent expected.

This brighter picture is coupled with UK inflation data released yesterday, which at 2.6 per cent, means wages are still rising at a slower pace than the cost of living but the gap has narrowed relative to previous months.

However Kathleen Brooks, head of research at City Index, noted that while sterling gained as a result of this morning’s (16 August) better than expected data, consumer stocks, which might have been expected to benefit from rising wages, did not react.

“I look at M&S and Next as my barometer for the UK consumer," she said.

"They haven’t really moved, but there is a lot going on with those shares, the market sentiment has turned against them.”

Ben Brettell, senior economist at Hargreaves Lansdown, said the data released today and yesterday indicates there may be “light at the end of the tunnel” for the consumer in the months ahead.

But he added this could be as a result of inflation falling, rather than wages rising, with wage growth likely to be held lower by technological advance.

Lat month, PwC predicted consumer spending would be squeezed by rising inflation and falling living standards.

Consumer spending has been a driving force of UK growth.

The latest ONS data on the country's gross domestic product, published in June, revealed that since the economic downturn in 2008 to 2009, household spending has grown by 13.8 per cent. In current prices, it has grown by 31.4 per cent or £74bn. 

But the data showed that while household spending has increased, the volume of goods and services purchased by households has increased at a far lesser rate, indicating the effect of price inflation.

The employment rate is currently at 75.1 per cent, after a drop of 157,000 unemployed people in the UK in the last year, and the number of economically inactive people has also fallen by 90,000 in the past year.

Although 883,000 people remain on ‘zero-hours’ contracts, this has fallen by 20,000 in the past year.

"Although this is a fairly small decline, if more firms stop hiring people on zero hours contracts then we could see wage growth start to rise on a sustained basis,” MS Brooks said.

However she doesn’t expect the consumer stocks to gain on positive economic data unless the retail sales figures for July show an improvement.