It’s no secret that the British economy has been flailing recently – even if it has managed to avoid the technical definition for a recession.
But, the government has been trying to draw attention away from the bad news and towards the recent drop in inflation.
Even when the OECD downgraded its forecast for the UK’s GDP growth in 2024 from 1% to just 0.8% - the weakest performance of all the G7 countries – chancellor Jeremy Hunt just emphasised the “good news that they expect UK inflation to drop below 3% next year”.
1. Average wages are £10,700 lower than they were expected to be back in 2008
Yes, despite the repeated claim that hiking public sector pay would cause a price-wage spiral, the average salary has still taken a real-terms cut since 2008, according to the Resolution Foundation.
It noted: “Real wages grew by an average of 33% a decade from 1970 to 2007, but this fell to below zero in the 2010s.
“In mid-2023 wages were back where they were during the financial crisis. [Fifteen] years of lost wage growth has cost the average worker £10,700 a year.”
The researchers said this meant “income inequality in the UK is higher than any other large European country”.
This has not gone unnoticed among the general public, either.
According to the report, “the share of the public citing poverty and inequality as one of the most important issues facing the country rose from 7% in 2010 to 19% pre-pandemic”.
2. £8,300 gap in living standards compared to the rest of Europe
The report suggests the UK was starting to catch up with more productive countries such as France, Germany and the UK in the 1990s and early 2000s – but it fell behind again from the mid-2000s, and is still yet to recover.
It noted: “Labour productivity grew by just 0.4% a year in the UK in the 12 years following the financial crisis, half the rate of the 25 richest OECD countries (0.9%).
“The UK’s productivity gap with France, Germany and the US has doubled since 2008 to 18%, costing us £3,400 in lost output per person.”
Unsurprisingly, this has trickled through the economy and resulted in worse living standards for the average worker – with middle-income Brits now 20% poorer than their counterparts in Germany.
3. Cost of living crisis won’t peak until 2027
The report claimed: “British households went into this crisis with low levels of financial resilience, and a sluggish living standards recovery is expected as we come out of it.
“Household incomes are not expected to reach their pre-cost of living crisis peak until 2027 at the earliest.”
The cost of living crisis is generally thought to have started in the UK in late 2021, when businesses are struggling to get back on their feet following the Covid pandemic.
It then got significantly worse after Russia invaded Ukraine, meaning the West started to wean itself off Moscow’s cheap fossil fuel exports.
The researchers also blame the decade and a half of stagnant incomes and a generation and a half of high inequality which altogether makes the UK “a stagnation nation”.