UK economy: Why aren't I feeling better?
- 25 July 2014
- From the section Business
This morning's economic growth figures confirmed that the UK economy has returned to its pre-recession peak from 2008.
In other words, the economy is producing more than it has ever produced before - so should we not feel more prosperous than ever before?
The trouble is that overall gross domestic product (GDP) is not necessarily what makes us feel prosperous.
Since 2008, the population has grown by more than 2.5 million and the number of people in work has gone up by 1.1 million. That means that while GDP has returned to its pre-crisis level, GDP per head and GDP per worker are still well below that level, which means that productivity is also down.
Lower productivity is reflected in a fall of about 9% in average earnings since 2008, adjusted for inflation.
GDP is not the only measure that has recently returned to pre-recession levels. The employment rate rose to 73.1% between March and May this year, rising above its 2008 level for the first time.
Feeling the benefits
Interest rates are still at the low rate of 0.5% - in January 2008 they were at 5.5%, so if you have had a mortgage over that period you should be feeling better, while net savers may be feeling worse.
Whether you're feeling better may have something to do with which sector you work in. It is the service sector that has dragged GDP above its 2008 level - if you work in manufacturing or construction you're still considerably below that point.
The real household income figures from the Institute for Fiscal Studies don't make terribly cheerful reading for anyone.
The income of the median household (that's the household for which half of households have a higher income and half have a lower one) has fallen by about £20 per week, after adjusting for inflation, since 2008.
The household at the 90th percentile (that's the one for which only 10% of households have a higher income) has seen its income fall by about £60 a week. At the other end of the spectrum, the household at the 10th percentile has seen a £2 per week increase.
So there is room for celebration, with the UK economy growing faster than its competitors and more people employed than before the recession.
But falling GDP per head, real incomes and average earnings mean that many households are not yet feeling the benefits.