UK economic outlook worsens as income inequality rises

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Growth in UK manufacturing and services activity has plunged to a 15-month low, fuelling the risk of a recession. Business activity has hit its lowest level since January 2021, when the country was in full lockdown. The UK composite purchasing managers’ index, an indicator of overall economic health, fell sharply to 51.8 in May, down from 58.2 in April.

Chris Williamson, chief business economist at S&P Global Market Intelligence, said the results hinted that “worse is to come”. He added that companies cited an increasingly cautious mood among households and business customers linked to the cost of living crisis, Brexit, rising interest rates, China’s Covid lockdowns and the war in Ukraine.

Despite a tight labour market, UK income inequality is on the rise with pay growing fastest for the highest earners, while those on the lowest incomes are most adversely affected by soaring inflation. Recent payroll data from HM Revenue & Customs, which include bonuses, show that for the top 1 per cent of employees pay rose by more than 7 per cent in real terms between December 2019 and March 2022. For the tenth lowest paid, real terms wage growth was just over 2 per cent.

The acceleration in pay at the top of companies is a sharp reversal of the trend in the years leading up to the pandemic, when earnings were growing fastest for the lowest paid, partly owing to rapid increases in the UK’s minimum wage.

There is also the problem of price increases outstripping salary gains, even in America’s hot labour market where companies are willing to offer more competitive and higher wages. Over the past year, prices for urban consumers in Atlanta, for example, are up 10.8 per cent, more than the 7.9 per cent increase across the country as of April, according to the Bureau of Labor Statistics. The agency’s latest data show that real hourly earnings, adjusted for inflation, are down 2.6 per cent year on year.

“We have this situation where it’s not really worthwhile to participate in the labour market. It’s expensive to go to work, especially if you don’t make a lot and you have to find childcare,” said Nela Richardson, chief economist at payroll processor ADP.

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Need to know: the economy

China’s premier has said the world’s second-largest economy could struggle to record positive growth in the current quarter, urging officials to help companies resume production after Covid-19 lockdowns.

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Sri Lanka has opened talks with the IMF over a $4bn bailout with observers waiting to see how China, one of the main creditors, will react. This month, the country defaulted on its overseas loans after missing interest payments on two $1.25bn sovereign bonds. This made it the first country in the Asia-Pacific to do so in more than two decades, according to Moody’s data.

Latest for the UK and Europe

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Global latest

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Amazon shareholders will challenge the company on executive pay, tax transparency, working conditions and unionisation today, as chief executive Andy Jassy faces his first annual meeting at the helm of the ecommerce giant.

Glencore will plead guilty to multiple counts of bribery and market manipulation and pay penalties of up to $1.5bn following US, UK and Brazilian investigations that uncovered corruption at one of the world’s largest commodity traders.

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A virtual office in the metaverse is being touted as the future of work, but raises many unanswered questions. One of which is how working in a virtual reality world beyond national and corporate borders might affect both employment rights and our relationships with colleagues. This week’s Working It podcast looks at the practicalities.

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Join us at the FT’s Future of Work event, focusing on rethinking the digital workplace, on October 19. Listen to talks on topics such as preparing businesses for a cyber attack and creating a leadership style for the hybrid world. There will be guest speakers from Nasa, the World Economic Forum, LinkedIn, Facebook and the Institute for the Future of Work.

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And finally . . . 

Kylie Minogue has wowed the world with her catchy pop songs. In 2020, she expanded her talents and launched her own wine brand, which will be available in the US from next month. Minogue tells Jessica Beresford why she could not get the idea of having her own rosé out of her head.