Recently in Economics Category
The Office for National Statistics was widely expected to announce changes to the way the retail prices index (RPI) measure of inflation is calculated this morning. But instead, the National Statistician, Jil Matheson, announced that the ONS would be leaving the way the RPI is calculated as it stands, despite stating that it did not meet current international standards.
"There is significant value to users in maintaining the continuity of the existing RPI's long time series without major change, so that it may continue to be used for long-term indexation and for index-linked gilts and bonds in accordance with user expectations," she said.
This week's Living Wage Week has seen an unprecedented national debate around the issue of whether employers should be encouraged to increase pay rates for low-income workers to a level that is calculated to provide a minimum standard of living.
The current squeeze on household finances - set to continue beyond the downturn - has put the spotlight on the part wages play in household budgets in the face of cuts to in-work benefits, the rising cost of childcare and minimal wage growth.
Trailed in the weekend's papers, Monday saw Labour Party leader Ed Miliband announce that his party is looking at various government levers for promoting the living wage, including the use of financial incentives, central government procurement and requiring listed firms to report how many of their staff receive less than the living wage.
As autumn arrives, the UK economy "is in serious need of some oomph," says Sunday Times Economics Editor David Smith.
The UK's double-dip recession is ongoing, with any boost from the London 2012 Olympics and Paralympics expected to be short-lived.
Chancellor George Osborne claimed last month that the economy is "healing":
They are difficult times for the British economy, difficult times for the world but our economy is healing, jobs are being created, it is taking time, but there is no easy route to a magical recovery.However, the Economics Help blog comments that "if the economy is really healing, it is a very slow form of healing."
The Coalition Government would now appear to be taking steps to attempt to inject some "oomph" into the economy. Business Secretary Vince Cable has announced a range of measures intended to boost growth, with further measures expected in Osborne's Autumn Statement 2012.
Alongside the latest inflation figures released yesterday, the Office for National Statistics (ONS) announced a consultation on changing the way the Retail Prices Index (RPI) measure of inflation is calculated.
Without delving into the technical details (which this article in the FT explains), the differences between certain formulae used to calculate prices for the purposes of the Consumer Price index (CPI) - the government's preferred inflation measure - and RPI, mean a "formula effect gap" which is thought to over-inflate RPI by as much as 0.9% a year.
While there is a "do nothing" option on ONS's list of possible outcomes, it is highly likely that the ONS will take action that will either eliminate this gap altogether or minimise it, meaning that from 19 March 2013, the proposed implementation date, RPI inflation may be significantly lower than it would have been. Analysts are already cutting their 2013 forecasts.
As well as implications for private sector pensions, any change will affect pay awards influenced by RPI inflation.
Despite the fact that the current recession seems to have broken what was previously a strong link between headline inflation and pay awards (£) - at least until the economy recovers - assessing the cost of living will arguably remain a key part of the pay review process for many employers, particularly where they are negotiating with a trade union.
RPI has long been favoured by pay setters, partly because it has been around so long and partly because it is seen to be a more accurate reflection of the cost of living as it includes housing costs unlike the CPI.
Our 2011 pay prospects survey (£) found that more than half (54%) of 286 firms would use one or more measures of inflation in setting their next pay award. Of those, eight in ten (79%) said they would use the RPI measure compared with 55% who said they would take heed of CPI, the government's preferred measure.
If changes go ahead to the RPI measure of inflation next year, it may be that employers continue to take RPI into account but RPI-linked or influenced pay rises will be lower. Or it may be that RPI simply becomes less influencial as a measure when it comes to pay awards, with more employers looking at the CPI or a basket of measures.
Whatever happens, it seems likely that the affect of any change on pay awards in 2013 will be to push them down, not up.
As the UK gets back to work after the summer holiday season, the double-dip recession drags on.
Prospects for a full recovery are edging ever further into the future. Bank of England Governor Mervyn King warns that a return to "full fitness" for the UK economy is a "a goal that may lie some years ahead".
Indeed, some commentators suggest that a "triple-dip recession" is now a real risk for the UK economy.
Recent weeks have seen calls from the IMF, the IPPR, and NIESR to moderate the pace of spending cuts in order to boost growth.
But the Coalition Government is not for turning on austerity.
Prime Minister David Cameron reaffirmed his commitment to austerity and told Sky News that Chancellor George Osborne would not fall victim to "reshuffle bingo."
The Telegraph reports that "the Coalition is preparing an economic regeneration Bill and is anxious to proceed with new infrastructure projects." However, it is not yet known when this Bill will be unveiled.
XpertHR's economic commentary for September 2012 assesses prospects for growth and the possibility of a "triple-dip recession." We also look at the likely resurgence in trade union activity in autumn 2012, and report on latest readings on key economic indicators, including inflation, pay awards and unemployment.
High summer is upon us, the summer holiday season is getting into full swing and the London 2012 Olympics are underway.
But underlying these reasons to be cheerful is a deeply problematic economic situation:
- The UK is still stuck in double-dip recession.
- The IMF says that the UK "recovery has stalled. [...] Confidence is weak and uncertainty is high. Looking ahead, the economy is expected to grow modestly, but with current policy settings the pace will be insufficient to absorb significant slack in the economy, raising the risk of a permanent loss of productive capacity."
- Economist David Blanchflower comments: "For most people [this] is the crisis that keeps on hurting. [...] Data releases continue to come in thick and fast confirming that the economy is going nowhere. [...] The Coalition bet the 2015 election on their economic policy working; it was the centrepiece of their agreement."
I can't see any time soon when the pressure will be off. I don't see a time when difficult spending choices are going to go away.XpertHR's economic commentary for August 2012 looks at whether the Olympics might boost growth and at prospects for long-haul austerity. We also report on the latest readings on key economic indicators of relevance to HR professionals and reward practitioners, including unemployment, inflation and pay awards.
As we reach the halfway point in 2012, the economic outlook is uncertain, to put it mildly.
Recent weeks have been tumultuous:
- June 2012 started with what Sunday Times Economics Editor David Smith dubbed a new "'Black Friday,' in which manufacturing in Britain and the eurozone slumped and America's job market stalled." The ensuing stock market panic suggested that the US economy had "caught Europe's cold," said the Independent.
- Bank of England Governor Mervyn King spoke of "a large black cloud of uncertainty" over the global economy, and set out measures intended to avert a second credit crunch. King also said that he is surprised at how much the global economic situation has deteriorated over the past six weeks, and is "pessimistic" about its short-term prospects.
- The crisis in the eurozone intensified further (although the latest bailout package would appear to have been initially well received). Investor George Soros argues that the eurozone "crisis is likely to come to a climax in the [autumn]. By that time, the German economy will also be weakening, so that Chancellor Merkel will find it even more difficult than today to persuade the German public to accept any additional European responsibilities."
- The end of June 2012 brought the unwelcome news that the UK economy remains in double-dip recession.
Here, we present an overview of economic prospects for the remainder of 2012, focusing on economic measures of direct relevance to HR and employment professionals and to reward specialists.
"We are living in perilous economic times," says David Cameron.
As June 2012 arrives, the longed-for green shoots of economic recovery remain conspicuous by their absence.
The UK economy is stuck in double-dip recession. And there is a growing sense that any recovery will be protracted.
The Telegraph's Jeremy Warner issued a bleak assessment of prospects for growth, arguing that "persistently elevated inflation in combination with stagnant output can only mean one thing. The banking crisis has permanently damaged the economy's capacity to grow." Warner contends that "we are in the midst of a long, long balance sheet adjustment, which may still have several more years to run before it's over."
Against this backdrop, the June 2012 economic commentary from XpertHR looks at research suggesting that the UK and European economies could be stuck in a so-called "austerity trap," and asks whether the Coalition Government's radical programme of employment law reform can achieve its professed aim of boosting growth.
We also report on latest data relating to pay awards, inflation and unemployment, and consider how UK HR departments are coping with the ongoing challenges of the harsh economic climate.
With the UK economy back in recession, XpertHR's May 2012 economic commentary looks at prospects for recovery and how long the age of austerity might last.
The UK economy is "on the critical list," according to the Ernst & Young ITEM Club.
Recent weeks have brought unwelcome economic news, suggesting that the UK economy could be in need of urgent attention.
The UK economy is in a state of double-dip recession, and concerns are mounting that recent falls in inflation could be coming to an abrupt halt.
Against this backdrop, XpertHR's economic commentary for May 2012 looks at prospects for growth, youth unemployment, public sector cuts, and asks if the age of austerity might be only just beginning.