UK's financial woes worsen during another turbulent year

Wages fall behind

To keep up with the rising costs people are facing, some companies have adjusted the wages of their workers. During the past two years, nominal wage growth has been accelerating, but it has been insufficient to counter the impact of inflation, with real earnings falling year-on-year between November 2021 and June 2023 and with growth only returning in September.

For employees in the public sector, such as healthcare workers and teachers, it is a more complicated and longer process before new government policies can bring upward adjustment of their incomes.

In November, the UK's Chancellor Jeremy Hunt set out the country's budget for 2024 in his autumn statement and announced a series of tax cuts, welfare programs, and public service spending policies, including that the legal minimum wage for workers older than 21 would increase to 11.44 pounds per hour from April next year.

However, the Living Wage Foundation responded that, though a rise is welcome for low-paid workers, it still falls short of the "real living wage", calculated by the charity based on a basket of goods, which stands at 12 pounds per hour in the UK and 13.15 pounds per hour for workers in London.

The gap between the minimum wage and the real living wage translates to 1,092 pounds a year for a full-time worker outside London, and 3,334 pounds for those working in London, where many things are more expensive than in the rest of the country.

In the past year, trade unions, including those representing teachers, train drivers, and nurses, have called strikes to demand pay rises. The latest, involving junior doctors in England, will see them walk out for nine days between December and January, after they failed to secure a better pay offer from the government.

To solve the interlinked crisis, the UK needs to put an end to the economic stagnation it has endured since 2007, said Martin Wolf, chief economics commentator at the Financial Times, who explored the issue in a two-part column article on the UK economy in December.

"The UK's economic dynamism has evaporated … Britain is suffering from a poisonous combination of stalled productivity and high inequality," Wolf said, adding that household incomes in the UK have fallen well behind those in peer countries as low-income households were some 27 percent poorer than in France or Germany.

But the combination of an aging workforce, geopolitical tensions, Brexit, higher interest rates, and the transition to greener energy will put more pressure on the economy and public spending, making it harder for the government to set out a plan to emerge from economic stagnation.

"Finally, strategic problems need strategic solutions. British governance does muddling through, instead. But that just will not work," he said. "The UK has become accustomed to managing stagnation: this frog is being boiled too slowly. I hope I am wrong."