It’s true to say the UK has become worse off. But some have felt the brunt more than others

Published

2 years ago

April 26, 2023

admin

When Huw Pill said, in a recent Columbia University podcast, that British people need “to accept that they’re worse off” the comments understandably hit a raw nerve.

With the country going through a once-in-a-generation cost of living crisis, it’s hardly palatable to be lectured by a very well-paid former Goldman Sachs banker that we all need to live a little less extravagantly.

But while Mr Pill’s comments were delivered with his foot firmly lodged in his mouth, there is an important truth lurking beneath them.

That truth is that the country as a whole is undoubtedly worse off as a result of the sharp increase in energy prices recently. Simply put, these days we import a lot of our energy, mostly in the form of natural gas.

And since those energy prices have risen so sharply, we are all having to pay more for our goods and services without earning more money in return. We – by which I mean the country as a whole – are all poorer.

You get a sense of this when you look at Britain’s national income – the amount of cash we’re generating here in the country – and subtract the amount of cash we consumers tend to spend each year.

The chart you end up with looks somewhat terrifying: a cliff-edge line of the likes we’ve never seen before. This is a pretty good illustration of how dramatically our collective net worth has fallen in the past year or so.

Yet saying the country as a whole is poorer is not the same as saying everyone is feeling the squeeze in quite the same way.

Indeed, look at the impact of this loss of collective worth and you see big differences. A few companies (and their employees and shareholders), notably energy producers, have done very well out of the price spike. Most have not.

In much the same way, the pain of higher prices is felt differently at different income levels. Inflation, remember, is the rate at which prices are going up each year.

But the extent to which different income groups have leeway, either through their earnings or their savings, to shoulder that increase, differs greatly.

Study after study has shown that lower income groups are feeling the impact of higher energy and food prices considerably more than higher income groups.

Broadly speaking, those in the upper end of the income distribution (which, for what it’s worth, includes pretty much all Bank of England economists) have seen significantly smaller falls in their spending potential than those at the lower end. The country has become worse off, but some have felt the brunt of it more than others.

These are what economists would tend to call “distributional” issues: how the benefits (or in this case pain) of an economic phenomenon are distributed out among the population.

Typically, the Bank of England tends to focus less on such issues than the big picture – that nationwide story about how we are, in aggregate, all worse off.

Not, it’s worth saying, because they’re heartless and don’t care, but because they view such challenges as something democratically elected politicians should be addressing rather than ivory tower academics in Threadneedle Street. Which is fair enough.

However, the cost of living crisis is two things at once: a big, macroeconomic phenomenon (the country has become poorer) and a distributional phenomenon (some people are feeling the pain more than others).

Mr Pill’s main mistake was not to be clearer that he was talking about the former issue, without being clearer that he wasn’t trying to pass judgement on the latter.

Still, it’s not the first time someone from the Bank of England has said something indelicate and insensitive at a time of nationwide economic insecurity – and it’s unlikely to be the last.

Business

Germany: Europe’s largest economy is facing a third consecutive year of recession

Published

60 mins ago

January 16, 2025

admin

Germany: Europe's largest economy is facing a third consecutive year of recession

Forget this week’s minor decrease in the UK inflation number.

The most important European data release was the confirmation from Germany that, during 2024, its economy contracted for the second consecutive year.

Europe’s largest economy shrank by 0.2% during 2024 – on top of a 0.3% contraction in 2023.

Now it must be stressed that this was a very early estimate from Germany’s Federal Statistics Office and that the numbers may be revised higher in due course. That health warning is especially appropriate this time around because, very unexpectedly, the figures suggest the economy contracted during the final three months of the year and most economists had expected a modest expansion.

Money latest: Guinness rival’s sales surge 632%

If unrevised, though, it would confirm that Germany is suffering its worst bout of economic stagnation since the Second World War.

The timing is lousy for Olaf Scholz, Germany’s chancellor, who faces the electorate just six weeks from now.

Worse still, things seem unlikely to get better this year, regardless of who wins the election.

Germany, along with the rest of the world, is watching anxiously to see what tariffs Donald Trump will slap on imports when he returns to the White House next week.

Germany, whose trade surplus with the United States is estimated by the Reuters news agency to have hit a record €65bbn (£54.7bn) during the first 11 months of 2024, is likely to be a prime target for such tariffs.

Aside from that, Germany remains beset by some of the problems with which it has been grappling for some time.

Because of its large manufacturing sector, Germany has been hit disproportionately by the surge in energy prices since Russia invaded Ukraine nearly three years ago, while those manufacturers are also suffering from intense competition from China. The big three carmakers – Volkswagen, Mercedes-Benz and BMW – were already staring at a huge increase in costs because of having to switch to producing electric vehicles instead of cars powered by traditional internal combustion engines. That task has got harder as Chinese EV makers, such as BYD, undercut them on price.

Other German manufacturers – many of which have not fully recovered from the COVID lockdowns five years ago – have also been beset by higher costs as shown by the fact that, remarkably, German industrial production in November last year was fully 15% lower than the record high achieved in 2017.

German consumer spending, meanwhile, remains becalmed. Consumers have kept their purse strings closed amid the economic uncertainty while a fall in house prices has further depressed sentiment. While home ownership is lower in Germany than many other OECD countries, those Germans who do own their own homes have a bigger proportion of their household wealth tied up in bricks and mortar than most of their OECD counterparts, including the property-crazy British.

Consumer sentiment has also been hit by waves of lay-offs. German companies in the Fortune 500, including big names such as Siemens, Bosch, Thyssenkrupp and Deutsche Bahn, are reckoned to have laid off more than 60,000 staff during the first 10 months of 2024. Bosch, one of the country’s most admired manufacturing companies, announced in November alone plans to let go of some 7,000 workers.

More of the same is expected in 2025.

Volkswagen shocked the German public in September last year when it said it was considering its first German factory closure in its 87-year history. Analysts suggest as many as 15,000 jobs could go at the company.

Accordingly, hopes for much of a recovery are severely depressed.

As Jens-Oliver Niklasch, of LBBW Bank, put it today: “Everything suggests that 2025 will be the third consecutive year of recession.”

That is not the view of the Bundesbank, Germany’s central bank, whose official forecast – set last month – is that the economy will expand by 0.2% this year. But that was down from its previous forecast of 1.1% – and growth of 0.2%, for a weary German electorate, will not feel that different from a contraction of 0.2%.

And all is not yet lost. The European Central Bank is widely expected to cut interest rates more aggressively this year than any of its peers. Meanwhile, one option for whoever wins the German election would be to remove the ‘debt brake’ imposed in 2009 in response to the global financial crisis, which restricts the government from running a structural budget deficit of more than 0.35% of German GDP each year.

The incoming chancellor, expected to be Friedrich Merz of the centre-right CDU/CSU, could easily justify such a move by ramping up defence spending in response to Mr Trump’s demands for NATO members to do so. Mr Merz has also indicated that policies aimed at supporting decarbonisation will take less of a priority than defending Germany’s beleaguered manufacturers.

But these are all, for now, only things that may happen rather than things that will happen.

And the current economic doldrums, in the meantime, will only push German voters to the extreme left-wing Alliance Sahra Wagenknecht or the extreme right-wing Alternative fur Deutschland.

Business

UK economy just about returns to growth after two months of contraction

Published

4 hours ago

January 16, 2025

admin

UK economy just about returns to growth after two months of contraction

The UK economy just about returned to growth in November after two months of contraction, the latest official figures show.

Gross domestic product (GDP), the standard measure of an economy’s value and everything it produces, grew by 0.1%, according to data from the Office for National Statistics.

It was expected to grow by 0.2%.

Money blog: Renowned chef shares his worst type of customer, overrated food and cheap recipe

It is mixed news for the government, which has made economic growth its top priority.

Despite this political focus, the economy shrank by 0.1% in both October and September. Latest quarterly data showed there was no economic growth in the three months from July to September.

The ONS described the economy as “broadly flat” and the rise as the economy growing “slightly”.

What parts of the economy are growing and which aren’t?

Doing well are pubs, restaurants and IT companies, said the ONS’s director of economic statistics Liz McKeown.

New commercial developments meant there was growth in the construction industry, Ms McKeown added.

The services sector grew “a little” but all this was partially offset by the accountancy sector and business rental and leasing.

Also pushing down the growth rate were manufacturing businesses and oil and gas extractors.

Why does it matter?

The government has pegged many of its spending and investment plans on economic growth. It needs growth to meet its political pledges and spending commitments.

But the economy is no bigger now than when the government assumed office in July.

Prices are expected to rise in April when water and electricity bills are increased again and employer taxes go up meaning there’s an expectation of inflation increases.

With more cost pressures on consumers, there are fears growth could be even more illusive than at present. A period of stagflation is feared at that point.

Chancellor Rachel Reeves admitted to Sky News the economy was growing “albeit modestly”.

When pointed to the idea growth has been snuffed out since Labour came to power Ms Reeves said the truth is the British economy had “barely grown” for the last 14 years.

Growth “takes time” and with investment and reform, she’s “confident we can build our economy and make people better off”.

Business

Spending calculator: Which prices are rising and falling fastest?

Published

1 day ago

January 15, 2025

admin

Spending calculator: Which prices are rising and falling fastest?

Inflation unexpectedly fell to 2.5% in December, following two consecutive months of increases.

Today’s inflation rate is above the Bank of England’s 2% target but lower than the forecast of 2.6% by economists.

This means that prices are still rising but at a slower pace than before.

But how does all of this affect the cost of groceries, clothing and leisure activities? Use our calculator to find out.

Which prices are increasing fastest?

Hair gel was the item with the largest price increase, with prices for 150-200ml rising by more than a third from £3.04 to £4.08.

The cost of olive oil also continues to rise. Prices for 500ml to one litre have risen from £7.40 to £9.11, an increase of 23%.

Olive oil has consistently had high price increases and experts have put that price rise down primarily to poor olive yields due to last year’s heatwaves in southern Europe.

However, they expect a significantly better harvest in the 2024-25 season, thanks to significant rainfall in Spain. The harvest could be double the size of last year’s, which may lead to lower prices in the coming months.

Food and drink products are responsible for seven of the 10 biggest increases since last year.

Top five price rises:

• Hair gel (150-200ml): up 34%, £3.04 to £4.08
• Olive oil (500ml-1litre): up 23%, £7.40 to £9.11
• Large chocolate bar: up 23%, £1.73 to £2.12
• White potatoes (per kg): up 20%, 74p to 89p
• Iceberg lettuce (each): up 20%, 82p to 98p

Overall, 45 of the 156 types of food and drink tracked by the ONS have actually become cheaper since last year.

Crumpet lovers have reason to celebrate. Prices for a pack of 6-9 crumpets have dropped by 9%, while another breakfast favourite, peanut butter, has seen an 8% drop.

Overall, 139 out of the 444 products in our database are cheaper than they were 12 months ago.

Top food price decreases:

• Pulses (390-420g): down 12%, 76p to 67p
• Crumpets (pack of 6-9): down 9%, £1.01 to 92p
• Peanut butter (225-350g): down 8%, £2.18 to £2.00
• Mayonnaise (390-500g / 420-540ml): down 7%, £2.20 to £2.04
• Canned tomatoes (390-400g): down 7%, 70p to 65p

Among non-supermarket items, kerosene has seen the largest price drop, falling by 17%.

What is the effect of long-term inflation?

The price changes described above compare the cost of items to where they were a year ago.

However, inflation has now been at high levels for an extended period of time.

The war in Ukraine, COVID, Brexit, and other supply chain pressures have all contributed to spiralling costs in recent years.

Inflation reached a 40-year high of 11.1% in October 2022.

While the headline inflation figure has come down markedly, any amount of inflation means that prices are still rising, and building on already inflated costs.

We’ve compared the costs of shopping items with what they were three years ago to see what the cumulative impact of inflation has been.

The biggest price rise for groceries over that time has been for olive oil (500ml to one litre), which has increased nearly two-and-a-half times (150%), from £3.64 to £9.11 in the past three years.

Iceberg lettuce is up by four-fifths, with one costing 98p now compared with 54p in December 2021.

Use our calculator to see how much prices in your shopping basket have risen in total since three years ago.

Who is worst affected?

Richard Lim, chief executive of Retail Economics, says: “It’s the least affluent households that are going to see much higher rates of inflation as they spend more of their income on food and energy.”

We’ll continue to update our spending calculator over the coming months so you can see how you’ll be affected.

Follow the Daily podcast on Apple Podcasts,  Google Podcasts,  Spotify, Speaker

Methodology

The ONS collects these prices by visiting thousands of shops across the country and noting down the prices of specific items. There are upwards of 100,000 prices published every month, from more than 600 products.

The items that form the “official shopping basket” change each year to reflect how the purchasing habits of the population have changed. For example in March 2021, after a year of the pandemic, hand gel, loungewear bottoms and dumbbells were added, while canteen-bought sandwiches were among the items removed.

Where there aren’t the exact equivalent items available at a survey shop, ONS officials pick the best alternative and note that they’ve done this so it’s weighted correctly when the averages are worked out.

Shops are weighted as well, so the price in a major chain supermarket will have a greater impact on the average than an independent corner shop.

We will be updating these figures each month while the cost of living crisis continues.

During the pandemic, more of the survey was carried out over the phone and work is ongoing to digitise the system to be able to take in more price points by getting data from supermarket receipts, rather than making personal visits.

Data journalists: Daniel Dunford, Amy Borrett, Ben van der Merwe, Joely Santa Cruz and Saywah Mahmood
Interactive: Ganesh Rao
Design: Phoebe Rowe, Brian Gillingham

The Data and Forensics team is a multi-skilled unit dedicated to providing transparent journalism from Sky News. We gather, analyse and visualise data to tell data-driven stories. We combine traditional reporting skills with advanced analysis of satellite images, social media and other open-source information. Through multimedia storytelling, we aim to better explain the world while also showing how our journalism is done.