UK economy: Squeeze is far from over, says Andrew Neil

I flew out of New York last night reading a New York Times report about collapsing living standards in Middle America to arrive in London to a similar story about Britain.

Between June 2009, when the US recession officially ended, and June 2011, inflation-adjusted median household income fell 6.7%, to $49,909, according to a study by two former Census Bureau officials.

During the recession - from December 2007 to June 2009 - household income fell 3.2%. Taken together, US median incomes have fallen by almost 10% from the start of the recession four years ago, a huge fall which those who wrote the study describe as "a significant reduction in the American standard of living."

It is also a vivid illustration of a phenomenon I've mentioned on the Daily Politics: that for most folk, the recovery is turning out to be worse than the recession!

Belts are being tightened on this side of the Atlantic too. Falling incomes in this country will mean the biggest drop for middle-income British families since the 1970s - and will push 600,000 more children into poverty, says a report from the Institute for Fiscal Studies (IFS).

The IFS forecasts two years "dominated by a large decline" in incomes. As a result, by 2013 there will be 3.1 million children in poverty in the UK, according to the IFS projections.

The IFS figures are yet another example of the tough times for people in the "squeezed middle" - with median incomes falling by 7%, says the IFS, after inflation has been taken into account, the sharpest drop in 35 years.

So times are tough for those on middle incomes and below in America and the UK.

On top of the economic distress this causes families struggling to make ends meet on falling real incomes, there is the wider economic consequence: when incomes fall and borrowing is no longer an option, people curb their spending - and with consumer spending accounting for almost 70% of our GDP, when people cut spending the economy stops growing.

The squeeze on middle and below-middle incomes is probably the single biggest reason why both the US and UK economies are flat-lining, with growth forecasts for both being consistently downgraded.

The bad news is that the squeeze is far from over. Most families are preparing this winter to tighten that belt another notch.

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