Is the UK economy really as bad as we think it is? Here is the truth of the matter |
The British economy has endured a series of setbacks in recent years: austerity, Brexit, the global pandemic, soaring energy prices and an increasingly fractured and uncertain world. The early optimism that accompanied Labour’s election victory faded quickly, with a recent poll ranking Rachel Reeves as the worst chancellor in modern history.
But is this fair? Is the economy really in as bad a shape as people feel?
A good place to start is with recent trends in inflation and wage growth. If prices rise faster than wages, we feel the pinch as the cost of living rises.
Price inflation shot up in the aftermath of the Covid pandemic, sharply eroding the spending power of our salaries.
Wage inflation has now caught up with price inflation, with strong income growth for all but the very poorest. On paper, that should have eased the cost of living pressures for most people. So why does our everyday experience tell us something different?
When we measure headline inflation, we average across all the different types of goods people buy. This is problematic since price inflation hits different items in different ways, and many frequent purchases are still relatively expensive.
Even though our wages have grown faster than the prices of electronics........