Brexit impact on real wages

A new analysis published today by the LSE Centre for Economic Performance shows that real wages have taken a hit since Brexit and Scotland is amongst the hardest hit areas of the UK.

The EU referendum outcome increased prices by 1.7%, which means that real wages in June 2017 were 1.7% lower than they otherwise would have been. This decline is equivalent to a £448 cut in annual pay for the average worker.

Put another way, this means the increase in inflation due to the Brexit vote has cost the average worker almost one week’s wages (4.4 working days’ wages, to be precise). Unless Brexit increases real wages in future years, this pay cut will be permanent. 

Households’ overall import exposure is similar throughout the income distribution. Poorer households spend relatively more on food and drinks, which have high import shares, but also on rent, which has a very low import share. Likewise, richer households spend relatively more on some high import share products such as fuels, but also spend a higher proportion of their budget on domestically produced services such as hotels and restaurant meals. 

Although the inflation effect differs little across income deciles, there are stark differences across regions. In general, the north of England is harder hit than the south. Scotland, Wales, and Northern Ireland are the worst affected areas. Compared with the UK average, the increase in inflation due to the vote is 0.18 percentage points higher in Scotland, 0.21 percentage points higher in Wales and 0.47 percentage points higher in Northern Ireland. 

This reinforces the need for the Chancellor on Wednesday to ensure that Scotland, and the UK, gets a pay rise.