BRIEFING - Paying the price - How the inflation surge has reshaped the British economy

This is far from the stereotype of spendthrift British consumers, but continues Resolution Foundation Paying the price | How the inflation surge has reshaped the British economy 5 a period of deleveraging on the part of UK households who have cut consumer debts by the equivalent of £48 billion, or around £1,700 per household, since the start of the pandemic. [...] The key driver of this difference is the greater share of essentials in the basket of those on low incomes: families in the second income decile spend 50 per cent more on food and energy than those in the ninth. [...] At the 10th percentile of hourly pay, wages held their value between 2021 and 2023 despite the inflation shock (growth was exactly zero), while across the rest of the distribution the real value of earnings fell – most steeply at the top of the earnings distribution – for example, workers at the 90th percentile of hourly pay saw their wages fall at a rate of 3.7 per cent per year in real terms. [...] First of all, the minimum wage generally only affects wage growth in the bottom third or so of the hourly wage distribution, and the ‘progressive’ shape to wage growth continues beyond that.10 Second, a similar pattern is observed in the weekly pay distribution, where the bottom of the distribution is made up of workers on low hours, not necessarily on low hourly rates of pay. [...] This is the flipside to big falls in the prices of financial assets which make up much of household wealth, especially pensions, and it represents a significant break with the trends of the past 30 years during which household wealth surged from around three times GDP in the early 1980s to over seven times GDP on the eve of the pandemic.