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Outlook for UK Households, the Devolved Nations and the English Regions

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  • Bhattacharjee, Arnab
  • Pabst, Adrian
  • Caswell, Ben
  • Robyn Smith
  • Szendrei, Tibor

Abstract

Living standards as defined by real household disposable income are projected to rise by 1.9 per cent on average in 2024-25 across all income deciles but will be below pre-pandemic levels: for households in income deciles 1-4, living standards will be between 7 and 20 per cent lower in 2024-25 compared with 2019-20. For the poorest 10 per cent, the fall in real income since 2019-20 is about £4,500 (in current prices): their living standards are lower by some 18 per cent compared with the pre-pandemic levels. Tighter monetary policy has considerably limited the hit to household finances from the inflation shock, but there are some distributional differences, with the bottom half of the income distribution sustaining a larger impact than the richest households: the rise in the costs of mortgages and unsecured loans for people in income deciles 1-5 has been higher by some 2 per cent on average than people in the top income decile. Recent strong wage growth has reduced the gap between the top income percentile and the bottom income percentile: this is especially apparent in the North East where the bottom percentile has experienced the greatest year-on-year growth in average earnings of 17.1 per cent in 2022-23 compared to the UK average of 8.5 per cent growth (relative to 2021-22). The ONS has revised down its UK-wide estimates of employment, but we find that this has a negligible spatial impact: with respect to employment, there are no significant changes to the regional variation between the UK's top performing and worst performing areas. The parlous state of local government finances threatens both the provision of basic public services on which the most vulnerable people depend and the prospect for a revival of struggling heartland communities: Local Authorities have seen deep cuts in central government funding without being able to raise extra revenue, while facing increased demand for essential services whose costs are rising faster than inflation (Box C). Urgent action is required to help Local Authorities in distress and regenerate the regions: support local government finances, by plugging the funding gap of £4 billion including a reform of council tax, and a credible commitment to maintain public investment at 4 per cent of GDP per year and productivity beyond the next general election.

Suggested Citation

  • Bhattacharjee, Arnab & Pabst, Adrian & Caswell, Ben & Robyn Smith & Szendrei, Tibor, 2024. "Outlook for UK Households, the Devolved Nations and the English Regions," National Institute UK Economic Outlook, National Institute of Economic and Social Research, issue 13, pages 51-87.
  • Handle: RePEc:nsr:niesra:i:13:y:2024:p:51-87
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    References listed on IDEAS

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    1. Joseph Vavra & Erik Hurst & Andreas Fuster & Martin Beraja, 2017. "Regional Heterogeneity and Monetary Policy," 2017 Meeting Papers 270, Society for Economic Dynamics.
    2. Anna Stansbury & Dan Turner & Ed Balls, 2023. "Tackling the UK’s regional economic inequality: binding constraints and avenues for policy intervention," Contemporary Social Science, Taylor & Francis Journals, vol. 18(3-4), pages 318-356, August.
    3. Philip McCann, 2020. "Perceptions of regional inequality and the geography of discontent: insights from the UK," Regional Studies, Taylor & Francis Journals, vol. 54(2), pages 256-267, February.
    4. Arnab Bhattacharjee & Adrian Pabst & Tibor Szendrei & Geoffrey J. D. Hewings, 2024. "NiReMS: A regional model at household level combining spatial econometrics with dynamic microsimulation," Spatial Economic Analysis, Taylor & Francis Journals, vol. 19(3), pages 436-461, July.
    5. Bhattacharjee, Arnab & Szendrei, Tibor, 2021. "Box E: Distributional impacts of Covid-19 and potential for policy intervention," National Institute UK Economic Outlook, National Institute of Economic and Social Research, vol. 0(4), pages 41-44.
    6. Bhattacharjee, Arnab & Szendrei, Tibor, 2021. "Box E: Distributional impacts of Covid-19 and potential for policy intervention," National Institute UK Economic Outlook, National Institute of Economic and Social Research, issue 4, pages 41-44.
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    Cited by:

    1. Max. A. Mosley & Edmund Cornforth, 2023. "The Macroeconomic Effect of the UK’s 2022 Cost-of-Living Payments," Discussion Papers 2316, Centre for Macroeconomics (CFM).

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