Londoners escape worst of inflation crisis with big pay hikes

London residents ware weathering the cost-of-living crunch better than people in the rest of the UK, one research group concluded

Residents of the capital saw their real wages adjusted for inflation slip by Pound9 ($11.13) a week compared to a year ago during the fourth quarter of 2022, research from the Centre for Economics and Business Research indicates.

At the other end of the scale, Northern Ireland saw real wages slide by Pound26 per week. The average across the UK was Pound19, CEBR said.

The figures emphasised the widening wealth gap between London and the rest of the UK. Part of this was to do with wage growth accelerating faster in the capital than elsewhere, surpassing 8 per cent.

Added to that, modeling from the CEBR based on regional disparities in spending patterns implied that areas outside the capital "especially Northern Ireland and Scotland" were suffering the highest level of inflation.

The figures follow official data showing the UK's poorest regions were also hit by the highest rates of ill health and people dropping out of the workforce.

'Levelling up' program

This will pile pressure on Prime Minister Rishi Sunak's government to reduce inequality across the country "- part of a "levelling up" program that the previous Prime Minister Boris Johnson vowed would be a "defining mission" of his premiership.

Improving public health imbalances would be important "not only to the individual, but also to the economy as a whole," said Karl Thompson, an economist at CEBR.

Wales, Yorkshire, and the West Midlands also had the lowest shares of residents who said in the 2021 Census that they are healthy, said Thompson.

"Though there are several factors at play, lower real earnings imply lower living standards and therefore often fewer resources available to lead a healthy lifestyle," Thompson said.

During his premiership in 2021, Johnson unveiled the Pound4.8 billion Leveling Up Fund backed by the taxpayer which would invest in infrastructure across the UK.

Just last week, the government revealed a list of 111 projects that will receive a share of the Pound2.1 billion handed out in the fund's second round. Those include a new rail link in Cornwall and an artificial-intelligence campus in Blackpool.

But as Levelling Up Minister Michael Gove prepares to speak at the Convention of the North in Manchester on Wednesday, he may be forced to defend the pace of the government's actions.

A separate study from forecasting group the EY Item Club today warned that Chancellor Jeremy Hunt's plan to tighten the public purse strings will deepen the UK's recession.

Economic outlook

The Item Club is predicting output will shrink by 0.7 per cent this year, a decline from the 0.3% contraction it previously penciled in last October.

It thinks stubbornly high inflation, rising interest rates and more restrictive fiscal policy will all weigh on the economy.

Corporation tax is set to rise from 19 per cent to 25 per cent in April, and the boost from the government's temporary "super-deduction"on taxes incurred through business investment will fall away.

"The UK is really the only major global economy that is cutting back spending and raising taxes in the face of a slow economy," said Peter Arnold, UK economist at accountancy firm Ernst & Young LLP. "That does explain why we see the prospects being a little bit weaker."

While a contraction in GDP for 2023 would make it the first calendar year decline for the UK since 2009, the recession will still be short, the Item Club said in its Winter Forecast.

It's predicting the economy will start to grow again from this summer.

"The UK's economic outlook has become gloomier than forecast in the autumn, and the UK may already be in what has been one of the mostly widely anticipated recessions in living memory," said EY's UK Chair Hywel Ball. "The one silver lining is that it won't necessarily be a longer one."