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Two key points that emerged from the UK Chancellor’s 2016 Budget on 16th March 2016 were the worsening outlook for the UK economy and the issue of income inequality.
Earlier this year, Euromonitor International forecast that the UK would have the strongest economic growth of the G7 in 2016 led by sound economic fundamentals such as low inflation, weak oil prices and the lowest unemployment in a decade. However, global risks have been increasing and exports are under pressure amid weak external demand. As a result, Euromonitor has recently revised down its UK growth forecasts slightly to real GDP growth of 2.2% for 2016 with further downgrades to around 2.0% likely. Yet, the worsening outlook can’t be blamed on conditions in the global economy alone. The biggest factor weighing on the UK’s economic growth prospects in 2016 is the uncertainty surrounding a potential Brexit in line with the upcoming June referendum. Until the future of the UK within the EU is determined, uncertainty will continue to cloud the economic horizon.
Regarding the issue of income inequality, according to Euromonitor’s Income and Expenditure database, the middle classes in the UK have generally been hit the hardest in the aftermath of the downturn following the global financial crisis of 2008-2009. As austerity measures came into force, the poorest 10% of households (decile 1) were the worst affected in 2010-2011 with a real decline of 5.3% in their average household disposable income compared to a drop of just 0.5% for the richest 10% of households (decile 10).
Despite these shocks, the UK is the most equal of the G7 economies where the disposable income of a decile 1 household stood at 10.2% of that of a decile 10 household in 2015 compared to just 2.7% in the USA, the most unequal G7 society. Furthermore, decile 1 households have seen the highest real growth in their average household disposable incomes since 2008 (2008-2015) boosted by a strong welfare system, although with decile 10 real income growth also rising at a similar rate, the divide in average household disposable incomes remains high at US$18,021 for a decile 1 household compared to US$176,949 for an average decile 10 household.
Source: Euromonitor International from national statistics