Andrew G Haldane, Chief Economist, Bank of England takes a deeper look at the UK’s economic recovery up to the EU referendum.
At least up until the referendum, macro-economists like me would wax lyrical about the UK’s economic recovery. The numbers spoke for themselves. GDP was 7% higher than its pre-crisis peak. More than 2 ½ million extra jobs had been created since 2010. Almost £3 trillion of extra wealth had been amassed. The UK was riding high at the top of the G7 growth league table.
Yet for those of us who have toured the country, speaking not just to businesses but to public sector companies, charities and communities, the picture often painted was a far from rosy one. For many of them, there had been no discernible improvement in their incomes and wellbeing. The language of “recovery” simply did not fit their facts.
This posed something of a conundrum for me in my day-job as Chief Economist at the Bank of England. Was this a healthy and wealthy recovery, as the headline numbers suggested? Or was it an insipid, or perhaps even non-existent, one as anecdote implied? Digging into the headline numbers began to provide some reconciliation of this puzzle.
If we look not at headline GDP but at households’ disposable income, a somewhat different picture emerges. Not one of a relentless rise over the past three years, but of disposable incomes flat-lining for the better part of 10 years. Perhaps as many as half of UK households have experienced a “lost decade” of income growth.
Dividing-up this income pie – regionally, socio-economically, inter-generationally – paints an even more nuanced, and uneven, picture of recovery. For example, at present there are only two regions across the UK – London and the South-East – where GDP per head currently exceeds it pre-crisis peak. In others words, in all bar two UK regions, there has been no real recovery even in GDP terms.
The distribution of this income across rich and poor is no less striking. Although the distribution of incomes across the UK may well have narrowed since 2008, patterns of wealth have diverged remarkably. While the lowest 20% of earners have been their wealth fall by around 20% since 2008, the highest-earning 20% have seen wealth rise by over 15%.
Age may have been a key driver of these patterns. All of the £3 trillion rise in net wealth since 2008 has been harvested by those over the age of 50 and two-thirds by those over the age of 65. While pensioner incomes comfortably exceed their pre-crisis levels, the same cannot be said for working families. These are huge inter-generational transfers, from young to old.
So when it comes to asking “Whose recovery?”, the answer is reasonably clear: those living in London and the South-East, those earning higher incomes, those aged over 50 and those owning their own home. This has been a recovery for the few, rather than the many.
This pattern of gains and losses across the economy is relevant for making sense of the past and for fashioning the future. For example, these distributional patterns may help explain why global and UK growth has remained fairly anaemic over recent years, despite large amounts of monetary policy stimulus. Large chunks of society are feeling no better off, and hence are no more willing to spend, than a decade ago.
Looking ahead, these distributional fault-lines – regional, inter-generational, socio-economic – are not ones which can be ignored. For growth to be sustainable and strong it needs to be inclusive and comprehensive. There is a role for public policy, over time, to seek to close these fault-lines to achieve inclusive and sustainable rises in societal well-being.
→ Whose Recovery? speech in Port Talbot, Wales on 30 June 2016
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