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The UK population is still poorer than it was in 2008

New analysis by the New Economics Foundation shows average living standards are still £128 per year lower than a decade ago

A combination of the financial crisis, austerity and the Brexit vote has meant that the UK population is still 1.6% poorer than it was a decade ago, equal to £128 per person, according to new analysis from the New Economics Foundation (NEF). This is despite the official statistics suggesting average living standards returned to 2008 levels in 2015. The analysis shows that the official statistics do not bear out the lived experience in the economy.

Official estimates for GDP use the GDP deflator’ to measure inflation, which accounts for changes in price of domestic UK output, or value added’. But output prices exclude VAT and the prices of imports which impact on the prices paid by UK consumers. This means that the rate of change in consumer prices can be quite different to those reflected by changes in the GDP deflator. The analysis shows that consumer prices have accelerated beyond output prices on three occasions in the past 30 years: once during the mid-1990s, in 2010 and in 2016.

Because the UK imports a lot of products, the value of the pound can determine the difference between consumer and output prices. When the pound is strong, imports become cheaper, but when the pound is weak the price of imports can rise significantly – the cost of which is borne by consumers. The analysis from NEF finds that since 1990, a collapsing value of the pound signified consumer prices outstripping output prices three times: in 1992 after the UK left the European Exchange Rate Mechanism (ERM), after the 2008 financial crisis, and after the Brexit vote in 2016.

The value of the UK pound is an important determinant of the difference between output and consumer inflation
Respective indices for output price inflation (GDP deflator), housing adjusted consumer price inflation (CPIH) and the effective exchange rate of sterling, Q1 1990 to Q2 2019, Q1 2008 = 100

Source: NEF calculations based on ONS estimates for changes in CPIH (ID: L522) and the GDP deflator (ID: L8GG), and Bank of England estimates for changes in the effective exchange rate for sterling (ID: XUQABK67)

When adjusted for consumer prices – the price paid by UK individuals and families — average living standards are yet to recover pre-recessions levels, by around 1.6% or £128 per person.

When estimated using consumer prices, real GDP per head has yet to recover 2008 levels
Respective indices for real GDP per head, one computed using the GDP deflator (ONS chain volume measure) and the other using consumer price inflation (CPIH), Q1 2005 to Q2 2019, Q1 2008 = 100

Source: NEF calculations using ONS estimates for CPIH (ID: L522), nominal GDP per head (ID: IHXT) and real GDP per head, ONS chained volume measure (ID: IHXW)

Alfie Stirling, Head of Economics at the New Economics Foundation, said:

This month’s second round estimates for GDP are expected to confirm what we already know: the UK economy underwent a surprise contraction for the first time since 2012. Many forecasters agree the chances that the UK is already in a Brexit induced recession are non-trivial.

But there is a danger that economists and commentators alike are missing the wood for the trees – agonising over whether we’ve fallen back into technical recession while for the majority of people, the lived experience still does not reflect an economy that is working for them.

The current political turmoil has distrust in technocracy and expert’ views at its core. Matters won’t be helped by the media fretting and obsessing over the likelihood of another recession, when the average person has yet to even recover from the last one.”


Becky Malone, /​07925950654

Notes to editors

The full analysis is available here.

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