Real weekly pay in Britain has never been higher. It’s also just 5% above where it was in 2008 — eighteen years for a 5% pay rise. That gap is this entire video. Because the government are right that the UK grew faster than the rest of the G7 this year, and most people watching will find that hard to believe. GDP measures output. People experience jobs, take-home pay, and what things cost. And arguably GDP has diverged from lived experience. These are six reasons why.
GDP per capita
Firstly, rather than just GDP, we need to take into account population growth. If we look at GDP per capita the big picture is the lost income since 2008. GDP per capita has marginally increased in recent months. But when looking for a recovery in the UK economy, you really need to get your magnifying glass out.
Employment
But, despite some growth, the UK is seeing economic growth without any growth in employment. If we look at pay rolled employees it is down 94,000 in the year to July. Vacancies hit a five-year low earlier this year and unemployment is creeping up to 4.9%. The OBR has forecast higher unemployment of 5.3% later in the year. But, unemployment figures are quite low by historical standards, certainly much higher in the 1980s and 90s, but there are two additional factors. Firstly, there has been a rise in under-employment, people working part-time, when they want more hours. Secondly, unemployment fell while health related claims rose. If you look at unemployment + sickness benefit, which is people not working, the figure is over 4 and a half million. Why is employment struggling despite growth? Firstly there was the rise in employer NICs from 2024 budget. Secondly, the ambitious above inflation rise in the minimum wage and thirdly AI driven hiring freezes in sectors that grew. This employment picture particularly affected younger workers, with big rise in numbers not in employment, or education or training.
Wages
For your average worker, bills aren’t paid by GDP, they’re paid by real wages. This is average earnings since 2000. The big drop is from 2008 to 2014. Since then, there is a recovery — and a small rise in the last few years. This is the 5% I mentioned at the start. But, the big story is that if the pre-crisis trend had held, average wages would be around £150 a week higher. That’s the gap people are feeling.
It’s the same with inflation. If we look at raw inflation data, it is substantially lower than the 2022 peak of 11%, but this is a misleading way to show how consumers react to inflation. We measure prices by how much things cost, and the reality is that prices are 32% higher than 2020.
One genuine bright spot in UK economy in 2026, has been the fact that inflation hasn’t been so much of an international outlier like in the past. 2.9% inflation is better than some forecasted at the start of the year. But the problem is everyone expects inflation to continue to rise due to a combination of war pushing up fuel costs and weather damaging food supply. Even AI is pushing up the cost of electronics and copper. And CPI doesn’t include the biggest living expense – house prices and rents. Rents have risen substantially since 2020, and this is the biggest drain on living expenses, something that cheaper electronics fail to compensate.
But, going back to wages, it is true we have seen modest growth, but this ignores a bigger picture. Tax. The tax burden has steadily increased to a peace-time record. More people are slipping into paying income tax at higher rates. And this is an excellent explanation of how data can say one thing, but the take home picture is worse.
Source: Dan Niedle, https://taxpolicy.org.uk/
A tax wedge is the difference between what an employer pays for labor and what an employee actually takes home in net pay
The picture is actually more complicated than everyone pays more tax.
Taxes were raised on employer NICs, and outside payslips and the higher-rate threshold frozen. For a median earner take-home actually grew faster than gross, because the NI cuts outweighed the freeze; the people who genuinely lost are above £50k.
This year Central Bank base rates have been held at 3.75%, but that hasn’t stopped mortgage rates rising because of the Iran conflict. And also people on old 5 year fixed rate mortgages are re-mortgaging to the higher rates of 4-5%. The conflict and news of rising petrol prices is also creating a lot of negative consumer sentiment. There is an understandable fear of what happens next.
Borrowing
In terms of positive news, Pensions Minister Torsten Bell recently pointed out how UK borrowing has fallen by 1% of GDP and is set to fall further. Also, UK borrowing has traditionally been worse than G7 average, but UK is set for faster fiscal consolidation. The problem with this is two-fold, forecasts of falling debt should be taken with a pinch of salt. The OBR is notorious for forecasting a fall in deficits, which usually fail to materialise.
He claims the previous government promised to cut borrowing only to fail, but does anyone believe, this will be any different?
The proposed fiscal consolidation requires, pretty severe cuts to departmental spending in the coming years. Also, it’s pretty hard to avoid the news that bond yields are rising across the globe, and here the UK is still something of an outlier. This is the big story, rising bond yields, means rising debt interest payments, squeezing government finances. Increasing taxes to pay bond holders, doesn’t make you feel any better to say the least.
Selective Data
Going back to the claims of UK’s fastest growth this year. It is the usual politicians trick of choosing a window where growth is fast.
But, a fairer comparison is since the start of Covid, and there you can see the UK’s performance is pretty weak and don’t forget the UK had rapid population growth at the end of Covid, which makes performance even worse. Though it is worth pointing out the boom in net migration is slowing quite sharply, and this has corresponded with a reduction in rent inflation.
Comparison against other economies?
A final thing is how useful is comparison against other economies? Because every advanced economy is experiencing a slowdown in economic growth rates compared to the post-war period. This is partly demographics as an ageing population, both slows down growth and puts pressure on public finances. But, whatever the reason, being slightly better than badly performing economies doesn’t make people feel more optimistic about their finances.
Now you could argue that some of the feels worse is just vibes. There is certainly a lot of doom videos on YouTube. When I asked my viewers what they expected about UK economy. The most popular was continued stagnation, which I think is a pretty fair assessment. A quarter believe the economy is heading for total disaster. Though interestingly, if you look at consumer confidence indexes there has actually been a marked improvement this summer.
It could get worse
However, there is a sword of Damocles hanging over the UK economy forecasts of higher growth and fall in borrowing assumes that the Strait of Hormuz re-opens, oil prices fall and heating bills go down. But, there is no guarantee this will happen, and there is a fear that the UK economy couldn’t cope with a renewed surge in inflation, borrowing costs and recession. And even as Bell admits the only reduction in borrowing has come from growth and higher taxes which have material effects on household finances.
So what is going on? There is data that shows marginal improvements in economic growth, pay and productivity. However, this minor improvement is only making a very small dent in the big loss of output, productivity and growth since 2008. Also, the recovery feels, at best, very fragile. With inflationary pressures returning, it risks derailing this fragile recovery. The problem is the UK has experienced many structural problems in recent decades. High electricity costs have led to big drop in manufacturing output. It has left us with large current account deficit and reliance on energy imports. Even wind and solar power relies heavily on Chinese imports. Also, when understanding the state of the economy, you might be better off walking down a high street in a left behind town, than poring through GDP statistics looking for a minor uptick.
Also, when understanding the state of the economy, you might be better off walking down a high street in a left-behind town than poring through GDP statistics looking for a minor uptick. The high street speaks of an economy in retreat and not working for people. And that’s the honest answer: you can look through the data and find small improvements, but the big picture is an economy stagnating, held back by high costs, inefficiency and structural decline — and that’s before the fiscal picture gets worse through an ageing population and climate change. Anyway, thanks for watching, let me know what you think, and do subscribe.
Sources
Growth and GDP
- ONS, Gross Domestic Product: chained volume measure, series ABMI — UK Economic Accounts.
- ONS, series IHXW — GDP per head, chained volume measure.
- House of Commons Library, GDP: international comparisons, briefing SN02784, 1 September 2026.
- OECD, Quarterly National Accounts, GDP growth release, August 2026.
Jobs
- HMRC and ONS, Earnings and employment from Pay As You Earn Real Time Information, seasonally adjusted — payrolled employees.
- ONS, unemployment rate, aged 16 and over, series MGSX.
- ONS, UK labour market statistics, August 2026.
- ONS, dataset EMP16 — under-employment and over-employment.
- ONS, dataset LF69 — economic inactivity by reason, long-term sick.
- ONS, dataset VACS01 — vacancies and unemployment.
Pay and prices
Tax and the public finances
- Torsten Bell MP, Fiscal Fact (and Fiction), 8 September 2026.
- HMRC, income tax rates and allowances, and National Insurance rates and thresholds, 2026–27.
- ONS, Public sector finances, UK — monthly borrowing.
- Office for Budget Responsibility, Economic and Fiscal Outlook — tax as a share of GDP.
Note on method
The tax worked example covers income tax and employee National Insurance only, for England, Wales and Northern Ireland. It excludes pension contributions, student loan repayments, benefits and council tax. Pay is uprated using ONS series KAI7. National Insurance rates are blended for the two years in which they changed mid‑year: 12.73% for 2022–23 and 11.5% for 2023–24.
Real average weekly earnings are ONS series A2FC, which the ONS deflates using consumer price inflation. The rise across 2020 and 2021 is partly compositional, because job losses in that period were concentrated among lower‑paid employees, which raised the average.
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