The Institute for Fiscal Studies says in its latest report that UK GDP fell some 6% from peak to trough in what it is calling the ‘Great Recession’.The IFS goes on to say that the associated decline in living standards looks set to continue until at least 2013-2014.
This means that the UK would have suffered from one of the worst decades since the Second World War, possibly even earlier.
The report also shows that the effects of the Great Recession on the UK fell somewhere in the middle of the international league tables with other countries faring far worse.
The IFS points out that living standards in the UK did not begin to fall until after the economic contraction had finished. Household income it says was mainly held up by the welfare system and the ‘unusually generous increases in financial state support during the recession’.
But now that the government has to address the deficit, the national debt and look to balancing the books, household incomes could be squeezed for some time to come. “In the most recent financial year (2010-11), earnings, state benefits and tax credits all fell in real terms in the UK” it says and this is likely to have resulted in the largest single year drop in median net household income since 1981 of 3.5%.
Robert Joyce, a Research Economist at IFS and a contributor to the report, said “The current economic downturn began more than 3 years ago, and may seem like old news. But, as in other developed countries, the most severe consequences of the recession on UK living standards have only just begun to be felt, and will continue to be felt for years to come.”