Real wages are on the wane and it's only going to get worse, say accountants

Oliver Gill
Follow Oliver
The Uk Minimum Wage Of GBP5.05
Look after the pounds... Brits may need to do this even more as prices increase (Source: Getty)

Sterling's post-Brexit vote collapse is hitting Britons where it hurts the most. In the pocket.

Inflation is outstripping wage growth as businesses are forced to pass on increased costs associated with sterling's slump to consumers, according to a report prepared by accountants BDO.  

“Rapidly rising inflation is quickly going to hit the pockets of UK consumers, affect the profit margins of UK businesses and ultimately slow the growth of the UK economy, said BDO partner Peter Hemington.

Read more: Sterling's hit a one month high against the dollar

BDO's inflation index stood at 102.8 in October, up from 102.1 in the previous month and higher than the 96.3 registered at a similar time last year. The index is well ahead of the long-term trend of 100 and is at its highest level for over three years.

The "Marmite-gate" saga between Tesco and Unilever focused public attention on the impact that the weakening pound was having on businesses.

Selling to Tesco in sterling, Unilever wanted to increase prices to compensate. A raft of other businesses from Microsoft to Pernod Ricard have indicated they will need to increase prices. Retailers are faced with the unenviable decision of whether to either absorb the increased costs or pass them on to consumers at the shopping tills.

The impact of sterling's flop will filter through to prices further in the months to come, according to BDO.

Read more: Shop prices continued to fall in October, despite sterling's slide

In addition, business confidence has sank. BDO's output index, which measures how businesses expect to perform over the next three months fell from 96.9 to 96.6. Meanwhile its optimism index, which looks six months ahead at company order books, fell from 99.5 to 98.5.

However, BDO said that the government has an opportunity to boost encourage businesses later this month.

“The Nissan and Hinkley announcements are a positive start post-Brexit, but the government needs to inject greater confidence back into the UK economy. We need a positive Autumn Statement that highlights immediate investment in infrastructure to help soften the blow to both consumers and businesses, and to encourage growth," said Hemington.

Related articles