LONDON — The Bank of England on Thursday said that regular Brits could start to work longer hours in order to combat the squeeze on their household finances triggered by the Brexit uncertainty affecting the economy.
Within a discussion of hours worked and wages, the bank’s Quarterly Inflation Report argued that the decline in real incomes since the Brexit referendum could push workers to simply try and earn more by working more to try and remain prosperous.
“The loss in real income as a result of the depreciation in sterling may also lead to some people wanting to work longer hours to make up that loss,” the bank’s inflation report said.
Average citizens are starting to feel the pinch as inflation is currently outpacing wage growth, meaning that Brits are essentially earning less than prices are rising, squeezing their ability to spend on discretionary items.
That squeeze started at the beginning of the year, but has continued as 2017 has progressed.
Currently, inflation is running at 2.6%, while wage growth is just above 2%, meaning that regular Brits are now bringing in less in wages than prices are growing, effectively lowering their real incomes.
“Household spending growth slowed in Q1 to 0.4%. That was slightly stronger than expected in May, and much stronger than total household real income which fell by 1.3% in Q1,” the Inflation report noted.
“As a consequence, the household saving ratio fell from 3.3% to 1.7%, its lowest level since the series began in 1963.”
At the same time, the bank’s governor, Mark Carney told journalists that it is now clear that Brexit uncertainties are weighing “on the decisions of businesses and households” and holding down “both demand and supply.”
Earlier the BOE held interest rates at a record low of 0.25% and left its QE programmes unchanged, while also trimming growth forecasts marginally, dropping its 2017 forecast from 1.9% at May’s inflation report to 1.7%.
“The MPC’s overall assessment of the outlook for inflation and activity in the August Inflation Report is broadly similar to that in May. In the MPC’s central forecast, GDP growth remains sluggish in the near term as the squeeze on households’ real incomes continues to weigh on consumption,” the bank said.
“Growth then picks up to just above its reduced potential rate over the balance of the forecast period.”
For 2018, the BoE also revised its growth forecast slightly downward from 1.7% in May, to 1.6% on Thursday.