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UK election slips in despite spending squeeze

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Jeremy Corbyn, leader of Britain’s opposition Labour Party, speaks at a campaign event in Reading. Reuters

LONDON (AFP) – British Prime Minister Theresa May has “timed well” this Thursday’s snap general election because Britons face a major squeeze on consumer spending in the coming years, economists say.

The UK economy is in relatively good shape, despite a first-quarter slowdown to growth, and has mostly defied gloomy predictions since the country voted last year for Brexit.

“The election has been timed well in terms of how UK households are likely to fare over the coming years,” said Scott Corfe, director at the Centre for Economics and Business Research think tank.

“Wage growth shows little sign of picking up and the era of near-zero inflation has come to an end, meaning that the squeeze on consumer spending power has returned,” he told AFP. British inflation hit a 3.5-year high in April, owing mainly to higher airfares, but also as a weak Brexit-hit pound raises import costs. 

The Consumer Price Index struck 2.7 percent – and forecasters are expecting it to strike 3.0 percent by year-end. And with wages growth weak, people’s purchasing power is being eroded by the inflation hike.

Recent official economic data meanwhile is pointing to weaker economic growth as Britain negotiates its exit from the European Union.

At the same time, the leader of the main opposition party Labour, Jeremy Corbyn, has gained ground on Ms May’s Conservatives in opinion polls amid worries over growing inequality in Britain.

UK gross domestic product (GDP) growth stood at 0.2 percent in the first three months of 2017 compared with the final quarter of last year.

That was the weakest quarter-on-quarter growth in a year, and followed a solid 0.7 percent expansion in the fourth quarter of last year.

Another concern is that rising inflation could see the Bank of England move to raise record-low interest rates faster than expected. 

Inflation held close to zero throughout 2015 – but has surged since then.

The unemployment rate however has dipped to 4.6 percent, the lowest level for 42 years, but many workers find themselves on low wages and short-term contracts.

Ruth Gregory, UK economist at research consultancy Capital Economics, argued that Britons will not face a total collapse in their spending growth this year.

“With credit conditions remaining supportive, employment growth still strong and consumers’ confidence robust, household spending growth is likely to slow only gradually this year rather than collapse completely,” Ms Gregory said.

However, Britain’s property market is showing signs of a slowdown in the face of Brexit, the weak pound and rising inflation.

Elsewhere, the outlook for business investment in Britain has soured somewhat, with some companies unwilling to commit amid uncertainty over the outcome of Brexit trade talks.

Despite such obstacles, the government’s powerful Treasury Department still predicts economic expansion of 1.7 percent this year, followed by 1.4 percent in 2018. The British economy grew by 1.8 percent in 2016.

Regarding investment and because of Brexit, employers are anxious over the impact of the loss of access to the European single market – which remains the biggest destination for Britain’s exported goods.

“The next government must provide as much certainty as possible to support firms in making the investment decisions necessary for the UK’s future prosperity,” said Carolyn Fairbairn, who heads business lobby group the Confederation of British Industry.

“The UK’s hard-won reputation as a predictable, pro-enterprise economy must be protected – the world is watching,” she added.

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