The United Kingdom is facing a dreadful decade of inflation and wage stagnation over the next 10 years, with or without Brexit.

That’s the consensus of a think tank called the Institute for Fiscal Studies (IFS), This is Money reported. Things will be so bad in the next four years is that the average household in the UK will be £830 (€974.96) poorer by 2020, another think tank called the Resolution Foundation charged. The IFS claimed the shrinkage will be greater possibly £1,000 (€1,1174.65) for every family.

The average household income in the UK was in £25,730 (€30,223.67) in 2015. If the Foundation is correct, that figure will shrink to £24,870 (€29,213.48) by 2020; which means a serious drop in consumer spending and economic activity.

Another problem is that real wages in the United Kingdom in 2021 will be below their 2008 level, Guardian Economics Editor Larry Elliott pointed out. That means Britons have not seen any economic growth since before the great meltdown. It also casts doubt on the contention that Britain is on course to becoming a new Australia.

Weakest Decade Since Before World War One

Among other things Britons will face the weakest decade of real income growth in over a century since before World War One – which began in 1914. Both the national income and household income will shrink during that period. The IFS estimates that Briton’s national income shrink by around £30 billion (€35.24 billion), falling from £2.466 trillion (€2.9 trillion) in 2013 to £2.436 trillion (€2.86 trillion) in 2020.

“One cannot stress enough how dreadful that is – more than a decade without real earnings growth,” IFS Director Paul Johnson told reporters. “We have certainly not seen a period remotely like it in the last 70 years.”

If Johnson is correct, wage growth is lower than it was right after World War II. During those years the economy had to absorb millions of returning veterans in a short period of time.

Most of the wage reduction; around £460 (€540.34) will be caused by wage stagnation, while £370 (€434.62) will be the work of inflation. This sounds like a replay of the 1970s when countries like Britain; and the United States, were plagued by stagflation (rising prices and declining economic activity). Stuff cost more, but there was less money to buy it with impoverishing the masses and driving civil unrest.

Is Brexit to Blame?

What’s truly disturbing is that most of the data the IFS based its decisions upon was collected before Brexit. Obviously Brexit backers will claim their measure will reverse or prevent these trends.

If this data is correct Brexit promoters are right about one thing; Britain desperately needs a new economic policy. The present one does not seem to be working for anybody.

Such data helps explain Brexit, average people are simply fed up with the status quo and they want to do something. It is also clear that many Brits no longer trust either Labour nor Conservatives to do anything about the situation. Both “New Labour’s” watered down Keynesianism and the Conservatives’ limited free-market policies, have failed to create the economic growth the United Kingdom needs.

Why are British Wages Stagnating?

The IFS predictions raise some troubling questions because Britain’s economy is actually doing better than that in other nations. The Gross Domestic Product grew by .6% during the third quarter of 2016 according to the Office of National Statistics that is certainly better than France.

Some sectors grew faster including finance which expanded by .8% and services which grew by 2.6%. That made for an annual growth rate of 2.2%, but the growth is concentrated in certain sectors including services; which is notoriously low paying. Another problem is growth in the financial sector which does not employ that many people.

Technology might be partially to blame because the growth might be resulting from increased automation and efficiency. Robots and other machines are doing the work instead of people which leads to the specter of technological unemployment.

It also casts doubt upon traditional economy policy solutions, which certainly include Brexit. Brexit can be seen as a return to traditional protectionism in which tariffs are used to create jobs by blocking imports. That might not work when the factories are not producing the jobs and income for average people.

Something will have to be done because Britain’s bill for pensions is growing as the Baby Boomers age. Chancellor of the Exchequer Philip Hammond has already frozen non-pension benefits in an attempt to get more money.

If the national income will really fall by £30 billion (€35.24 billion) in the next three years, even greater cuts will be needed. That might lead to even less economic activity – and more pain on the part of ordinary people. One potential result of that might be civil unrest in the form of rioting and protests.

The IFS is right Britain is facing a pretty dreadful decade. The United Kingdom seems to be entering a new era in which traditional economic policy solutions no longer work. Other nations need to pay close attention to what is happening in the UK, if they want to avoid dreadful decades of their own.


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