Investment and stockbroking firm AJ Bell has sad that while an acceleration in wage growth for UK workers might ‘put the Bank of England on a state of alert when it comes to the next interest rate increase’, it will likely please UK retailers.
“In February wage growth, including bonuses, outpaced inflation, as measured by the consumer price index, for the first time since January 2017,” commented Russ Mould, AJ Bell investment director.
“That puts some welcome additional spending power into consumers’ pockets and the FTSE All-Share General Retailers index has tended to do best when wage growth has been outpacing inflation and do worst when pay increases have lagged increases in the cost of living.”
According to the index, Food & Drug retailers, which includes mainstream supermarkets, have seen a 9.4% increased in performance in 2018, bettered only by the Automobiles & Parts (+38.6%) and Technology Hardware & Equipment (+34.5%) sectors.
General Retailers are down 7.2%, however, with Beverages retailers down 9.0%.
Wage Growth
Mould added that it will be “interesting to see” if the current increase in real, inflation-adjusted wage growth becomes a trend.
“That said, the increase in real wages was just 0.1% in February, so no-one is likely to be getting carried away, especially as higher wages are not a zero sum game for retailers,” he added.
“Many have been, and will be, affected by increases in the national minimum wage and the Living Wage, while they may not welcome any increase in interest rates from the Bank of England either, as that would be designed to cool the economy, not heat it up, by increasing the cost of mortgages and borrowing more generally. Nor is the challenge posed by the internet for bricks-and-mortar retail sites likely to go away in a hurry.”
He closed by saying that any sustained improvement would provide a positive boost for a sector “where bad news has been the norm for some time”.
© 2018 European Supermarket Magazine – your source for the latest retail news. Article by Stephen Wynne-Jones. Click subscribe to sign up to ESM: European Supermarket Magazine.
