FX.co ★ UK living standards fall dramatically

The British pound has declined after the news came that UK living standards had plunged in February 2022 compared to eight years ago. Wage growth has fallen further behind the rate of inflation. Although experts predicted this situation, the pressure on the pound has resumed. It is evident that the decline in the welfare of British households is now the key issue for UK Finance Minister Rishi Sunak and the UK government.

According to the Office for National Statistics (ONS), average UK salary excluding bonuses increased by 4.1% compared to last year. However, after adjustment for inflation, average earnings fell by 1.3% over the same period, the lowest level since late 2013.

The surge in the UK living standards resulted in a weak labor market. At the same time, it seems favorable that the unemployment rate fell to 3.8% in three months, the lowest level since the end of 2019. The number of job openings rose to a new record of nearly 1.28 million in March 2022, indicating a severe labor shortage. However, these factors are not beneficial to the UK citizens as high inflation, the cost of services, and utility bills as well as fuel prices take up the lion's share of their income. Nevertheless, some experts note that the current increase in wage growth will probably be a legitimate reason for the Bank of England to raise interest rates again in May 2022. However, despite the growing labor market, ongoing skilled manpower and labor shortages along with rising costs exert additional strain on households. Employers have to raise wages in expectation of hiring experienced staff, further fueling inflation.

Income cuts are likely to hurt UK economic growth this year. Notably, UK authorities have raised taxes recently causing further problems for British households in the future. As noted above, utility bills are currently the most significant problem. Rising energy bills will probably lead to an unprecedented growth of UK living standards. British household incomes are falling as wages fail to keep pace with the rising cost of living. Therefore, the UK finance minister should make a new emergency budget proposal to the UK parliament to help British citizens to survive this crisis.

Notably, UK finance minister Rishi Sunak was severely criticized by economists and philanthropists for providing a bailout package not taking into account the poorest people in the UK. Meanwhile, the Bank of England intends to raise interest rates for the fourth time in May to curb long-term price pressures.

As for other fundamental data, British retailers warned of a sharp slowdown in sales as higher prices reduce purchasing power. These consequences are predictable considering the current complicated situation for British households. Sales rose by 3.1% compared to March 2021 when the coronavirus restrictions were imposed in the UK. The figures suggest that the country is facing a cost of living crisis. It could have a more profound impact on consumer confidence and attitude toward future spending. However, experts note that British households have not profoundly been affected by the recent rise in energy prices. It will further exacerbate their welfare along with highest inflation affecting spending and slowing the country's economic growth rate.

Technical picture of GBP/USD pair

The pound has broken through the lower boundary of the sideways channel and continues its bearish trend. The bulls have to regain the resistance of 1.3040. If they break through this range, they can reach the levels of 1.3105 and 1.3140. If the bears break through 1.2990, the pound will definitely be around 1.2950 and 1.2910. However, there are no signs that the bulls will try hard to change the situation even at the current lows. This fact is proved by recently released data on the UK economy.

Technical picture of EUR/USD pair

The geopolitical tensions between Russia and Ukraine have escalated as Kyiv is clearly dragging out the negotiations. Taking into account the Fed's aggressive policy, a further strengthening of the dollar is likely. Euro buyers need a break above 1.0930 to resume control of the market. This move will provide a correction to the highs 1.0970 and 1.1010. In case the EUR/USD pair declines, the buyers can expect support around 1.0840 as it was at the end of last week. Its breakout will push the trading instrument to the lows of 1.0810 and 1.0770.