Saving more, reducing debt, hiding the real issues. 

The resilience of the UK economy as shown by recent GDP figures is encouraging. The savings ratio is increasing, and consumer debt is decreasing. Everything looks good as we approach 2021.

Is this the UK we are living in currently? Or are these figures hiding the real situation of the UK economy?

One of my favourite charts, although a little dated now shows the regional inequality of GDP distribution, showing the pre COVID-19 inequality in the UK is the largest of any developed economy.

Looking at this chart in conjunction with charts and statistics courtesy of Henry Tapper and Michael Johnson on LinkedIn completes the picture.

AirFunders decided over the weekend to do some research in to just how this increase in savings and reduction in consumer debt looks across various socioeconomic sections of UK society. We have surveyed a representative sample of 5,000 individuals with varying employment status and income during the pandemic. 53% of our sample were employed on full salary, 17% furloughed, the remaining 30% included self-employed, unemployed and students.

Looking at income distribution, we found that there was a clear, unsurprising correlation between income and savings growth/debt repayment during the pandemic. Individuals with low household incomes showed a much lower percentage of ability to repay debt or grow savings.

The one figure that stood out in our survey was the large percentage of respondents in the lowest income bracket with no consumer debt. This bracket is however populated by students and those unable to access mainstream finance and possibly in receipt of benefits. In many ways a hangover from the 2008 financial crisis.

Our survey does add to the view that there are socioeconomic differences that need to be taken into account when looking at how GDP and associated shapshot measures should be interpreted.

The ‘just about managing’ group of society may be the ones most at risk here. We don’t hear much about them anymore although Teresa May and David Cameron did highlight this group in low majority days.

Legal & General’s ‘Deadline to the breadline’ research will delve deeper in to the changes in UK society during the pandemic but it is clear that there has been a massive shift given the sharp increase in the savings ratio and sharp decline in consumer debt in the UK.

Hospitality and high street retail are significant victims of the pandemic with many worried about their ability to survive, and a good few major victims already which means the data and inequality lags the true situation.

It is quite ironic that as the hospitality industry is punished and customers are forced to stay at home, the economic figures, GDP, the savings ratio and household debt will all point towards an improving economy.

I pointed in my last blog post to the Carnegie UK Trust measure of economic and social progress, GDWe (Gross Domestic Well-being). It is precisely this well-being that the economy needs to focus on or the headline economic figures will continue to hide significant inequality and ‘the poverty premium’. The benefits of socialising in pubs and restaurants to our well-being is immeasurable and provides mental health benefits. The economic figures do not reflect this unfortunately.

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