Money Round Up – UK wage growth, Battery powered cars

Please note this blog post was published over 12 months ago and so may not include the most up-to-date information, for example where regulation around investing has changed.

Claudia and Luke present the latest economic update from our investment team. You can read the complete stories on our blog here.

C: Hello and welcome to this week’s Money Round Up, where we start this week with something that affects us all, UK wage growth.

L: Lack of growth after the economic downturn in 2008 persisted for some time, with an increase in zero hour contracts and multi-part time jobs. At the same time, globalisation encouraged free movement of labour, meaning in the UK many low paid, lows skilled jobs were filled by overseas workers.

C: In the state sector, the introduction of austerity meant public sector wage growth was limited. However, in recent months, wage data has started to improve, albeit from a very weak level. This time, data released shows another steep increase in average weekly earnings, excluding bonuses. Wages are now 3.1% higher than a year earlier.

L: This is the fastest rate of growth since the crash and subsequent recession and the first time the headline rate of pay growth has been higher than 3% in a decade. The rate of growth is also higher than inflation meaning that real spending power is improving.

C: What’s behind these improvements? Well, government finances are improving, tax revenues are rising, and employment levels have been rising for months now. The latest reduction in unemployment, by 47,000, takes unemployment to 4%; the lowest level for over 40 years.

L: The impact of lower unemployment levels means employers are more likely to offer incentives and higher wage levels. This helps them to attract a better standard of workers from a shrinking talent pool.

C: We must wait and see now what unfolds next, as a common by-product of wage growth within an economy is a corresponding increase in inflation.  However, if the UK economy achieves improvements in productivity and invests productively this is what will allow inflation to remain subdued for an extended period.

L:  One clear positive is the relevance of higher wage levels for future tax receipts. Tax revenue should increase. This is good news for the chancellor who must try and balance the books. The uptick in wages may also be timely for borrowers and consumers. While interest rates are still set on a low trajectory, there will be pressure for interest rates here in the UK to rise if growth picks up; rising wages are a useful offset to higher borrowing costs.

C: Brexit will also have an impact here, with negotiations still underway we must wait and see what happens.

L: The evolution of battery technology in recent years has been incredible, and electric vehicles are becoming a realistic alternative to unleaded and diesel fuelled vehicles.

C: This week the dynamics of regulation have shifted the goal post. The need to respond to climate change has moved from an ideology to a requirement. European car makers are required to meet a 35% reduction in carbon dioxide emissions by 2030, sparking concern amongst Europe’s leading manufactures including Volkswagen. The direction of travel is going one way, towards electric powered vehicles and away from fossil fuels.

L: At the core of the electric vehicle is the rechargeable battery. As it stands the world is inherently dependent on production from Asia. They will produce 80% of the batteries in the 2.1 million cars expected to be manufactured this year. China alone will produce 69% of that total figure.

C: The US is looking to catch up, and in 2009 as part of their economic stimulus plans, they allocated $2.8bn towards investment in advanced battery technology.

L: According to Bloomberg global demand for all electric vehicles is forecast to be at 30 million units per annum by 2030, thus if Europe can increase their existing 4% share of battery production they may be able to benefit from a new growth industry.

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