Consumer spending squeezed by declining wage growth
- Annual rate of growth in take home pay fell to 3.0 per cent in May, according to Voca
- Cost of living continues to outstrip wages
- Lowest rate of growth since December 2006
6 June 2007: The Voca take home pay index shows that growth in take home pay fell further to 3.0 per cent in May from 3.6 per cent in April. This is the lowest rate of growth since December 2006 and indicates that wage inflation remains subdued.
The Voca services sub-index, which reflects take home pay growth in the service sector registered a substantial decline from 3.6 per cent in April to 2.5 per cent in May. In contrast, the manufacturing sector sub-index was unchanged in May from April at 3.4 per cent.
Richard Cooper, head of marketing and communications at Voca, said:
“The Voca take home pay index shows the rate of wage growth has steadily declined over the last five months. As the cost of living continues to outstrip growth in pay, household finances are being squeezed and there is an increasing reliance on the equity in property values to support consumer spending habits.”
Douglas McWilliams, chief executive of cebr, the economics consultancy which analyses the take home pay index for Voca, said:
“We forecast that the housing market will slow in the second half of 2007. The combination of rising interest rates, weak take home pay growth and high prices is likely to dampen demand. However, the limited supply of housing, particularly in London and the South East mean that conditions are not suitable for a price crash.”
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