LONDON — Bank of England Governor Mark Carney claimed Britain is in the midst of “the first lost decade since the 1860s” on Monday.
The phrase was delivered in a wide-ranging speech packed with data and charts. One chart in particular caught the eye and demonstrates precisely why Carney feels he can make such a bold claim about the British economy.
Here it is:
The chart shows that, on a 10-year moving average basis, real wage growth has collapsed dramatically over the last decade at a rate and consistency not seen since the 1860s. (A post-war slump from the late 1940s to mid-1950s is comparable but not quite as deep nor as rapid a fall.)
The governor said the slump was indicative of a “crisis of growth” in advanced economies since the financial crisis, with productivity levels struggling. Wages are not growing because the overall economy itself is struggling to expand.
The real wage growth slump has been largely nullified by a collapse in inflation since the financial crisis — wages are not rising, but neither are prices.
However, real wage pain is set to get worse as a result of the Brexit-driven collapse in the pound, which should lead to the return of inflation.
The Institute for Fiscal Studies warned last month that the UK faces a “dreadful” lost decade of real earnings growth unprecedented in the last 70 years. Carney warned in his speech that he expects either a rise in unemployment or rising prices as a result of Brexit, both of which would hit peoples’ wallets.
The governor blames the collapse in wage growth for a widespread backlash against free trade and globalisation. Even though people may not feel that much worse off, stagnation is equally angering particularly when juxtaposed with growing wealth elsewhere.
He told the audience at the at the Liverpool John Moores University on Monday: “Weak income growth has focused growing attention on its distribution. Inequalities which might have been tolerated during generalised prosperity are felt more acutely when economies stagnate.
“In recent decades, as global inequality has fallen markedly, it has edged ever higher in most advanced economies. In Anglo-Saxon countries, the income share of the top 1% has risen notably since 1980. Today, in the US, the richest 1% of households receive 20% of all income.” He added that wealth inequality is even more marked, with “The proportion of the wealth held by the richest 1% of Americans increased from 25% in 1990 to 40% in 2012.”
The governor called for governments, corporations, and central banks to pull together and work out a system of “more inclusive growth.” (You can read more on the governor’s diagnosis of the economies problems and his solutions here.)
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