There are continuing signs the UK’s economy is increasingly resembling itself prior to the financial crisis. House-price growth has cooled of late, but is still growing at 4.6% YoY, down from almost 12% last summer. Consumer credit is also growing at a healthy clip, with unsecured lending growth higher than it’s been since 2007, and consumer credit overall growing 8% on an annual basis.
It is perhaps no surprise consumer credit is growing rapidly given wage growth in the UK has been lamentable. Cumulative real wage growth in the UK since 2008 has been one of the worst in the G20, with wages 8% lower than they were in 2008 (bottom chart). We are also seeing signs of austerity not only beginning to bite but to sink in. It was only towards the end of the last parliament that spending cuts began to gain traction. While private wages are now growing on an annual basis, public wages have taken a lurch lower and are contracting again. Momentum in austerity will be a growing headwind for the UK economy.