Feelgood factor rises as wages gather pace

Official figures released this week are expected to show that total average earnings in Britain for the final quarter of last year rose by more than 1.5% over the previous year. With inflation having fallen to 0.5% in December, the growth in weekly pay has now outpaced price rises since the early autumn. Inflation is also forecast to have dropped to 0.4% in January. There now appears to be a consensus among economists that the UK is set to enter a brief period of deflation on the back of low oil prices, cuts to domestic fuel bills and the supermarket price war. Falls in the price of oil and other raw materials are also having a dramatic effect on manufacturers' costs. Analysts are now predicting that in January alone, producers' input prices fell by as much as 3%, which would be almost 12% lower than in the equivalent month of 2014. Output prices for goods leaving factories are also believed to have been about 1.6% lower in January than a year earlier. These reductions should be passed on to the consumer over the next few months. However, prices in the service sector are continuing to edge up.


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