Has the ordinary person seen any economic recovery in the UK?

A long running theme of this website has been that the collective economic experience in the UK has been much better than the individual one. In other words the aggregate size of the economy has risen but the benefits have been much weaker by the time they arrive at you or me. There are various issues here such as the rise in the UK population and no doubt many of you will be wondering if some funds have been siphoned off by the 0.1%?! However on Friday the Chief Economist of the Bank of England addressed this issue so let us take a look at what he thinks about it. If you want it in a nutshell he put it like this.

The language of “recovery” simply did not fit their facts

The aggregate performance

This was covered here.

Since 2009, however, all three measures have begun to recover: GDP has risen by around 14%, employment by around 8.5% and wealth by around 35%. These are strong recoveries. Indeed, all three measures now exceed their pre-crisis peaks: GDP is 7% higher, employment 6% higher and wealth over 30% higher than in 2008.

So far so conventional, in terms of view although there is something in there so central bankerish that perhaps our central banker does not see it. I am referring to him using an increase in wealth which via house and equity prices is something he has helped to drive. This of course disproportionately benefits the already well-off.

Just as a reminder this recovery has not been great if we look back at others.

Even after the Great Depression of the 1930s, GDP was 16% higher. For those with a long enough memory, this time’s recovery is likely to feel quite anaemic, relative to those in the past.

What never seems to occur to central planners is to wonder if there would have been a better recovery without them! Instead of course we get a call for “More! More! More” or as our Andy puts it “muscular easing”.

The individual experience

Andy brings up a metric that will be very familiar to readers of my work.

GDP is a measure of the size of the economic pie, a pie that has grown substantially larger since 2009. But so too has the number of people eating it. Taking the two together, GDP per head has risen significantly more slowly than aggregate GDP since 2009. Indeed, GDP per head today is only around 1% above its pre-crisis peak

So 1% is the new 7% if you wish to put it like that.

Going Wider

Andy heads towards a metric that covers the flaw in GDP numbers which I regularly cover concerning Ireland. Indeed as recently as last Wednesday I wrote about my concerns re the 21% increase in GDP recorded in a single quarter.

GDP measures income from all UK-based activities. But not all of that income flows to UK citizens…….

Okay what is the answer then?

If we take net overseas income out of GDP, to give a measure of net national disposable income per head, it has recovered even more slowly than GDP per head. It is currently at levels little different than its pre-crisis peak. National income per head suggests there has scarcely been any recovery.

As discussed in the comments section on here over the weekend ( h/t Andrew Baldwin) there is a problem with scarcely any recovery. You see the chart provided shows a fall of ~2%. If a 1% rise merits a mention which is a ~2% fall brushed over? I have looked at the data and note that in 2007 we saw £24,068 and in 2015 we saw £23,718. Or a drop which turns out to be of 1.5%.

Now some care is needed here as what Ireland with its wild swings in recorded exports and imports for 2015 taught us is that official data is unreliable in this area.In my opinion the recording of investment flows is even worse. But if you take them as they are then in fact “there has scarcely been any recovery” is the new down.

Indeed for a substantial group the problem predated the credit crunch.

Half of all UK households have seen no material recovery in their real disposable incomes since around 2005.

Generation X face a worrying future

Regular readers will be aware of the factors at play here but the Resolution Foundation has some new data on the subject and skipping the politicisation as ever let us take a look.

Young people have experienced the biggest pay squeeze in the aftermath of the financial crisis, seen their dreams of home ownership drift out of sight.

Indeed the meat of the situation comes here.

In contrast to the taken-for-granted promise that each generation will do better than the last, today’s 27 year olds (born in 1988) are earning the same amount that 27 year olds did a quarter of a century ago. Indeed, a typical millennial has actually earned £8,000 less during their twenties than those in the preceding generation – generation X.

A little care is needed here as we have been through a sharo downturn in this period but even before it there were signs that there may be trouble ahead.

there are signs that problems preceded the recent crisis. Those millennials who were 25 years old before the financial crisis hit were already seeing no pay progress on preceding cohorts.

This is a clear change after more than a few generations of progress but I would now lile to make a point which the Resolution Foundation does not. Please think again about the policies that Andy Haldane has supported before reading the bits below.

evidence that the pay of today’s workers has been suppressed by firms filling deficits in defined benefit pension schemes that provide for older or retired workers. Some estimates suggest that as much as £35 billion is being diverted to this effort each year by businesses.

This is an example of how QE has sucked money out of businesses rather than boosting the. So it has weakened businesses whilst supporting gains for shareholders on it way to creating exactly the wrong set of economic incentives. For those who are unaware of the methodology the lower Gilt yields driven by QE style policies make (defined scheme) pension benefits larger which means that company funds are diverted to fill the perceived gap. Stealers Wheel were kind enough to summarise my views on those who have not only let this state of affairs exist but have in fact made it worse.

Clowns to the left of me jokers to the right

Also rental costs are higher which of course relates to the fact that house prices have been driven higher by the Bank of England.

With more people in such accommodation and renting costs rising over time, millennials are spending an average of £44,000 more on rent in their 20s than baby boomers did


There is much to consider here as the Chief Economist of the Bank of England echoes two of the main themes of mine. Firstly that just looking at GDP is misleading and secondly that different groups have been impacted very differently by the impact of the credit crunch. However the favourable view of him weakens when you see that he seems blind to the way that policies he not only has supported but wants more of have contributed to this state of affairs. The Resolution Foundation gives us some data on the adverse impacts of QE via pension schemes.

If we stick to Generation X the band rather than the age group we did get this albeit via John Winston Lennon.

All I want is the truth now
Just gimme some truth now
All I want is the truth
Just gimme some truth
All I want is the truth
Just gimme some truth

ARM Holdings

The proposed takeover by SoftBank of Japan is of course big news. However as I see so many today trying to fit square pegs into round holes in weak attempts to explain it there is the issue of the fall in the UK Pound £ versus the Yen of 21% in 2016. Actually the timing fits with a reversal of the Yen more recently and perhaps getting ahead of the next move of the Bank of Japan.

I also see that the Financial Times is sending out messages about a “‘sad loss of independence’” and cannot help wonder if this also applies to its own recent takeover by a Japanese company?


27 thoughts on “Has the ordinary person seen any economic recovery in the UK?

  1. This is essentially the chickens coming home to roost – our politicians, business leaders and bankers being all to blame.

    I have been banging on about productivity since 1979, when I first got into Friedmanite economics and was studying the development of West Germany as part of A-level German (indeed, it was my knowledge of this that got me an A as the language element was pretty easy that year). I talked about apprenticeships, even at the age of 17, when I was lucky enough to be in the 12% headed for university. Of course “banging on” was what our political leadership did about the EU, rather than worrying about commerce and skills. But it as much wider than that – I was called an extremist for advocating what is now economic orthodoxy; my German teacher told me it was the “Freie Soziale Marktwirtschaft” – years later, I read that Erhard said he used this name to buy off the lefties opposing his “Freie Marktwirtschaft” policies. I said Lawson should have been sacked or the 1987 bubble budget and seeing the 25% increase in M3 money supply in early 88, cleared off to South America for 3 1/2 months, while the housing market blew up. Ironically, the companies running these trips now focus on 2-3 week trips as Generation Y cannot afford the longer ones – it is a shame as to quote Jon & Vangelis: “I will echo, oh, for the reasons that change me”.

    I mentioned my late relative’s house in “South Fulham” in the past. Had i left university and gone straight to work, i could have bought it with a chum or girlfriend with both of us earning £6K. Even with modernisation and extension costs, we would not have had to earn more than £10k ever – now we would be sitting on £1.4 million with no tax liability! Indeed, I had trouble with a neighbour in 2006 – he and his “Essex” wife had maxed everything out and there were problems in the house roof. So, he decided on a stupid extension, borrowed £40k from Santander, did some banging and hammering himself, while the idle authority planners (in the next town) just waved it through> He reckoned he would cover his costs and make £50K to clear his debts. I had just finished one of the toughest DL MBA programmes and it had cost about £10k plus at min wage rates about £12K in time. So, if I were to make £50K profit and cover my costs when MBAs were reckoned to average £5Kpa gross/say £3.2K nett, I would have to work 23 years to be in the same position! Indeed, I would have done better to buy a local Victorian terrace and rent it out.

    The result of society in general rewarding house-sitting over skills has been this:http://www.ons.gov.uk/economy/economicoutputandproductivity/productivitymeasures/bulletins/internationalcomparisonsofproductivityfinalestimates/2014 We are 10% less productive than Italians, who seem to spend more time waving their arms about than doing much!

    Instead, we have seen the reward of the idle and the taxation of the productive – compounded by Gideon’s latest wheeze to reduce CGT. All the authorities can do is cut rates, hoping it will stoke demand and thus GDP, while raising house prices, against which Gideon hoped domestic borrowing would double. All that has happened is that asset prices are so high that capital repayment has sucked the life out of demand and interest rate changes (like 0.25%) will have no effect. GDP has historically grown at 2-2.5%, which is the expected increase in productivity – given the growth in population (so bemoaned by Brexiters), the reality is that we are no more productive. Business leaders are just using cheap labour and currency devaluation to avoid investment, thereby also trying to raise short-term share prices. We have now locked ourselves into the Japanese issue – and check out that first graph in the ONS report to see whom we are more productive than.

    Just don’t blame me – I argued for this 35 years ago. I have an MBa, LLB (Hons) and decent German. I have often been told I should have bought a house soon after leaving university and gained experience (sat on my bum). My mistake – it is what in should have done.

  2. Hi Shaun

    One thing you don’t mention is the role of debt.

    In my view debt has been substituted at the margin for income for some years now and the continual low interest rates have made the anesthetic palatable. It is one of the reasons for keeping them low; if they went up the pain would be felt immediately and the illusions blown away. The immediate effect would also be a further pre-empting of income which could not be spent; in other words the economy would tank.

    The blowing of the housing market bubble has also been a major factor when people have to spend a higher proportion of their income on mortgage or rent they do not feel and better of because their discretionary income in many cases is indeed much lower. The Resolution Foundation has highlighted these things on a number of occasions

    Between demographics and productivity I can’t see this situation getting much better as these structural headwinds militate against any meaningful recovery.

    As to pensions they have been trashed over the last twenty five years and when people wake up to what has happened and see what they are facing in retirement they will not be best pleased.

    • ‘In my view debt has been substituted at the margin for income for some years now and the continual low interest rates have made the anesthetic palatable’

      ‘Between demographics and productivity I can’t see this situation getting much better as these structural headwinds militate against any meaningful recovery.’

      couple of insightful quotes there Bob if you don’t mind me saying.I echo Private F

  3. Hi Shaun, wasn’t it Andy Haldane who bemoaned that pension consultants didn’t understand pensions? Well if I may venture so bold, I bemoan Chief Economists of the Bank of England who think their policy decisions each exist in a vacuum. Yes deficits are huge, but how much of this does he think is due to ZIRP and NIRP in the bond markets? This level of brass neck is unalloyed. He seems to imply it’s anything to do with him, perhaps it’s all due to extraneaous factors beyond the bank’s control and trustee’s poor investment decisions, no doubt assisted by useless pension consultants.

    There’s little you have written in the last few years (Charles Bean notwithstyanding) which has got me so revved up.

    • Hi Andy Z

      There is of course another irony in that Andy Haldane’s pension is very simple to understand. It is based on his final salary, it is paid with inflation uplifts based on the RPI, and it is guaranteed by the taxpayer. I checked this years accounts and noted that Bank of England lifers like him got an “adjustment” before the new scheme began.

      Those who do not benefit from the RPI might wonder why Andy and his colleagues were so silent as it was downgraded for nearly everyone else?!

  4. Hi Shaun

    You rightly mention Japan if you apply fundamentals (which clearly don’t matter) the yen should be plummeting in value instead the opposite is happening.
    Why is this happening?
    Abe and Kuroda look to be defying all logic and getting away with it?
    Everything I thought I knew appears to be wrong.

    • From the Wall street Journal last February: “When foreigners sell Japanese stocks, they simultaneously close out those short yen positions. This causes the yen to rise, which investors see as a further sell signal on stocks, since so many Japanese companies are reliant on a cheap currency to remain profitable. It is a classic feedback loop with market-shattering consequences” (foreigners make up 60% of the Japanese market).

      Then of course, there is that central issue – where do you put money for it to be safe?

    • You rightly mention Japan if you apply fundamentals (which clearly don’t matter) the yen should be plummeting in value instead the opposite is happening.
      Why is this happening?
      Suppose for a moment, that the whole financial system is as insolvent as we can imagine it to be.
      Where would money go?
      It would, imho, go not to the best run economies, (efficient economies are of a tiny scale by comparison, and cannot solve the problem) it would go where TPTB have shown most willing and able to preserve the status quo, regardless of the eventual bust which must come sometime.

      Economies most willing to kick the can the furthest, most often, into the long grass, are seen as the safest havens, regardless of economic performance.

      Why else, with its banks failing, are Italian Govt bond yields so low?
      Why else, with €80bn QE per month is the €, which should tank, so stable?
      Why else, with its huge levels of debt and its lost decades is the Yen firing ahead?
      How come, with so much Japanese Govt. intervention in the economy has that not tanked?

      Too Big To Fail has been replaced by Too Big To Save, so normal measures are worthless.
      If someone is dying in pain, you give them enough morphine to relieve that pain; the long-term consequences are irrelevant.

      • ‘Why else, with its banks failing, are Italian Govt bond yields so low?
        Why else, with €80bn QE per month is the €, which should tank, so stable?
        Why else, with its huge levels of debt and its lost decades is the Yen firing ahead?’

        It’s mind boggling how these feedback loops get so big without any in Tractor production factory seeing the danger ahead.

  5. Hi Shaun
    It seems that the “Lifeblood” is being
    sucked out from the bottom up and millions
    seem unaware of their fate.
    Is the ARM sale to be funded by
    Abe’s almost free funny money?

    Ry Cooder

    The very thing that makes you rich, makes me poor.


  6. Hi Shaun,
    In your comparisons of GDP today, with that of the past, are we in danger of overestimating the past? Before the crash, the banks were apparently very profitable, north sea oil was still contributing, and there was PFI. So, maybe, if you strip some of these out, we may be doing better than we think.
    However, if we wish to do better, we need, as a nation, to understand that we cannot have our cake and eat it. We seem to believe that there is no need to modernise, no need to grasp the future and compete with other nations, no need to understand that the world is not standing still. We have been living in this “dream” for many years aided and abetted by politicians, who promise more, but can only achieve even a glimmer of this by borrowing; or now, by emergency IR after 7 years.
    If the politicians really wanted to increase GDP per capita, they would have to be truthful about how to achieve it – and it would come as a major shock to many people!
    Perhaps the biggest scandal lies in our education system, where we are always told how wonderful our teachers are performing. Yet the average 15 year old in the UK is three years behind the leading countries in the Far East. Let me repeat that: the PISA tests show that fifthteen year old pupils in the UK have the knowledge of a twelve year old of the best educational systems!
    Airport expansion is another scandal, that the politicians have failed to grasp. How many years has this been put off?
    How about energy and electricity production? Are we grasping the potential of fracking, which could increase our GDP and help with the balance of payments? No,we are “investing” billions in that well known medieval technology – windmills. Personally I cannot understand why the industrial revolution did not start in the twelfth century.
    We have to stop living “the dream” and wake up to the fact that to increase GDP pc, we have to drop the luddite attitude and grasp the future.

    • Anyone who cites PISA as evidence in this way really should also mention the health warnings on the packet – ev though the’re obvious. But as with the fags, people believe what they are predisposed to believe. As for “we are always told how wonderful our teachers are performing” – what planet is that happening on?

  7. Hi Shaun
    You have summarised the consequences of;
    1 1971 Nixon decision to fully embrace fiat currency
    2 Increasing financialisation of the economy from the 80s onwards
    3 Increased personal and national debt to replace income increases from productivity growth
    4 2008 rescue of the banks including QE infinity
    5 NIRP infinity
    On top of this is layered globalisation,demographic inversion, and robotics.
    There is no longer any relationship between the 0.1% world and the one the rest of us inhabit.
    Do we continue the march to a feudal ‘Dune’ world?

  8. What also worried me about Andy Haldane’s speech was the admission that he, and I can only presume his colleagues, rarely meet people outside of business circles.

    He writes: “My next visit was to a community centre in Nottingham with half a dozen local charities and community groups. This was something of a new departure for me.”

    These people are paid a small fortune to make vital decisions for the UK economy, yet they are only speaking to a tiny sub-section of the population.

    I searched the Bank of England website for a list of people and groups that Andy Haldane and his colleagues have met, but was not able to find out much beyond MP committee meetings and private sector banking groups.

    Andy Haldane goes on to write that many charities were having to deal with more and more problems, no wonder the Brexit bow wave caught so may unaware.

    But then again if you are in your ivory tower, were you seeing rising prices as a positive, there is no reason to come down to ground level.

    Here is his speech:


    • Hi Craig and welcome to my corner of the web.

      Last night I was involved in a conversation about Andy Haldane in the City and it would appear that he is as isolated in his thoughts and experience as you fear. It is perhaps the flip side of being a Bank of England “lifer” ( since 1989).

  9. ‘Perhaps the biggest scandal lies in our education system,’

    Not least in academic economics.

    ‘These people are paid a small fortune to make vital decisions for the UK economy, yet they are only speaking to a tiny sub-section of the population.’

    Got to say the comments today have been superb.

    Shaun,thanks for your continued work trying to bring these important issues into the MSM.

    It may not seem like much but at least the CBers are beginning to actually recognise some of the problems such as the per capita element of using GDP as an unerring measure of national income.

    It would really make my day to hear him discuss quite how accounting fictions such as imputed rents-11% + of UK GDP distort the reality even more.

    Someone told me that back in the 1960’s imputed rents were a mere 2% of GDP….

    That speech is actually a start to me of reality dawning.It’s a shame it’s taken so long and I hope his enlightenment continues

  10. Great stuff Shaun, thanks. – this is one to frame and hang on the kitchen wall in Downing Street. Hopefully someone will read it.
    Come to think of it – hopefully Andy H. will read it too.
    But, as Elvis said, we’re caught in a trap. The trap that JW describes above. Very sad.

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