A big pay squeeze coming? #finance
There have been lots of warnings this week of a pay squeeze coming that will affect the poorest in society most and maybe more benefit cuts too. The chancellor even hinted that the triple lock on pensions could be abolished.
The pay squeeze won’t hit the new police commissioners who get outrageous incomes for doing nothing but moan about speed cameras. The squeeze won’t hit high paid executives of our national companies or in government. It certainly won’t hit executives in the heath service or local government where they are still being appointed on a £1,000 a day while libraries are being closed down. The so-called living wage will be introduced but will soon be swallowed up by rises in electricity, gas, water and food. I think we can expect housing costs to rise too. The Brexit chickens are coming home to roost.
The good news is we are likely to see interest rates rise in the near future and the free ride for mortgage payers will finally start coming to an end. This could stabilise the housing market but it might be bad news for house builders. If the rates rise slowly, then house builders will adjust and house prices will continue to rise, albeit more slowly.
The pay squeeze is likely to be coupled with inflation but perhaps not inflation across the board. The luxuries will not be hit so hard as essentials like food and so the official inflation rate will be much lower than the actual cost of living rises for most people, which will mean benefit increases won’t match the rise in real living costs.
The stock market
Overall the stock market has been fairly flat this month. There are FTSE 100 gains when there is a little optimism and the FTSE 250 has suffered because of fear of a downtown. If the IFS predictions come true then we can see a lot of companies in the retail sector getting squeezed even more.
I don’t intend to panic but be patient and make a few adjustments to my investments. Maybe sell some investments that rely on retail and buy shares in a depressed oil company like Premier Oil. Royal Dutch Shell could benefit from a rising oil price too. I think the pound could fall a little further so I’ll hold on to GlaxoSmithKline and enjoy the dividends. I expect some AIM investments like Solo Oil to take a few years to come good, but I can wait. Demand for some things will rise in the winter, such as oil and gas and even gravy. So I expect my Premier Foods shares to gain a little as well as the oil price.
Will we get a Santa rally in the next few weeks? Retailers could see a spike as the better off middle classes splurge on champagne and luxury mince pies. I won’t sell Tesco just yet.
Some people will be immune to the pay squeeze and I can’t see MP’s taking a pay cut so this could be an opportunity to inflate away government debts and maybe the credit card debts of the middle classes while others queue at the food banks and payday loans shops.