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UK consumers are getting slammed by inflation, and have now experienced the first fall in their take home pay in 30 years, according to the Financial Times.The news is coupled with a little dose of positivity, with GDP contracting 0.5% rather than the 0.6% expected in Q4.
The decline in consumer spending that impacted Q4 GDP is being blamed on what was a very difficult December weather wise in the UK. That being said, similar conditions existed in France and Germany, and they reported positive GDP growth for the period.
The problem is the industrial sector only makes up 22.1% of the UK’s economy, while services make up a massive 77.1%. So a 1.1% increase in manufacturing sector growth isn’t suddenly going to spur on an economy whose consumers have stopped spending.
And this inflation problem isn’t just a recent issue tied to instability in the Middle East. Inflation has been above 3% in the UK since the start of 2010.
It’s pretty clear that if the UK wants to avoid multiple quarters of negative quarter-on-quarter GDP growth, and a double-dip recession, it will need to tame its inflation problem to get its consumers to spend once again.
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