Falling real wages in the UK must constrain the growth in demand for holidays

Just before Christmas I blogged about research by the Joseph Rowntree Trust which reported  that that since 2008 there has been an “unprecedented erosion of household living standards” thanks to rapid inflation and flat-lining wages which suggests that many families are unable to afford a holiday and many more are having to be very careful about how much they spend.

Now the UK’s Office of National Statistics has looked at the trends in real wages in the UK.

UKRealWages“Real wages growth was volatile during the 1970s when inflation rates were high and variable. Since then growth has fluctuated less, but has been on a broadly downwards trend. There appear to have been small step changes down in real wages growth occurring around the end of each decade, perhaps in response to the UK or global recessions which occurred at those times. Annual real wage growth averaged 2.9% in the 1970s and 1980s, then roughly halved to 1.5% in the 1990s. The rate slowed again to an average of 1.2% in the 2000s, and real wages fell by 2.2% per annum between Q1 2010 and Q2 2013. The chart also shows that the recent episode is the longest sustained period of falling real wages in the UK on record.”

Read their analysis – it is available on-line

Demand cannot be unaffected by trends in real wages.

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2 Responses to Falling real wages in the UK must constrain the growth in demand for holidays

  1. Ajay Patel says:

    Falling wages ‘must’ constrain demand. Well, not sure if I’m convinced. It depends if households decide to forgo travel. They may buy cheaper travel or sacrifice other discretionary purchasing. The recent fall in unemployment might be more influential in keeping up demand. Other factors include the real cost of travel and mortgage interest rates at a current low. Recent news about travel is positive e.g. TUI

  2. One of the reasons for TUI’s success is the growth in all inclusives as holidaymakers “fix” the cost of their holidays. I suspect that you are right and that UK consumers will seek to protect their annual holiday in the sun, just as rising fuel prices have demonstrated how inelastic demand for petrol is.

    However, the long term trend is for UK consumers to be less affluent – food, energy and mortgage costs are unlikely to remain low further squeezing discretionary spend as living costs rise.

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Harold Goodwin