Originally published 15 October 2025. I’ve left the argument and figures as they stood then. Where I got something wrong on the data available at the time, the correction is marked in square brackets, with sources and notes in the footnotes.
Updated 1 October 2026: A year on, the argument holds, though five of my figures didn't (corrections marked below). The gap I wrote about is still there: since the end of 2019 the economy has grown 6.2%, output per person just 1.7%. The past year has been mixed. Output per person and real pay are growing, but unemployment has risen to 4.9%, there are 101,000 fewer people on payrolls, and the government is borrowing £8bn more than forecast.
It’s grey outside today, and cold. Summer is a distant memory and Christmas is too far away to get excited by. My phone pings and I see the headline: “UK to have highest inflation rate of major economies, IMF says.” According to the IMF’s latest world economic outlook, Britain will have the highest inflation of any major economy this year, 3.4% (although that’s not even the real number), compared with 2.1% in Germany and 1.1% in France. Not only that, but the steepest long-term borrowing costs in the developed world.
What was more infuriating than these miserable facts was the focus on the IMF’s “upgrade” to UK growth, and Rachel Reeves celebrating that Britain is expected to post the second-fastest GDP growth in the G7. Yaaaaay!
Except that this is nothing to celebrate. Have you ever wondered why the government (and this is all of them, it’s not a left/right thing) is all smiles and party poppers about our GDP growth signalling a bright future and recovery just around the corner, except it still feels like Britain’s stuck drinking Tennents Super in a car park at 10 a.m. on a Monday? Well, it’s because GDP is a terrible measure of prosperity and one of the most misleading numbers in modern economics.
Stop using GDP
GDP or Gross Domestic Product measures the total value of goods and services produced in an economy. What it doesn’t tell you is how that wealth is distributed, or how it’s generated (productive activity – good - or debt – probably not so good), or how many people have to share it. For a country like the UK, where population growth has surged through massive inward migration, GDP is a deceptive comfort blanket. Even as we all suffer, it can grow.
The more honest measure is GDP per capita, the output per person. It’s the number that actually tells you whether life is improving or not. It strips away the crowd size and asks: how much value does each person in this country create and share in? If total GDP is rising but GDP per capita is flat or falling, it means we’re running faster just to stand still, like going up the down escalator.
GDP per capita tells us whether the average Brit is better off. Unfortunately, on that metric, Britain is sliding backwards (and this is probably why we don’t use it). Adjusted for inflation, UK GDP per head is lower today than it was before the pandemic and roughly flat since 2016. [Correction: ONS figures published in September 2025 put GDP per head 0.8% above its pre-pandemic level. Barely above, not below.]1The economy looks larger on paper only because there are more people in it. It’s as if we’ve invited more diners to the table and declared success because the meal got bigger, not because anyone’s portion did.
This is why the praise from the IMF isn’t worth the promissory note it’s printed on. 1.3% headline growth is pathetic. Output per worker and per hour remain stagnant, and the country’s share of global manufacturing and trade continues to shrink. Were it not for the huge amounts of migration, our sickness would be obvious. GDP growth is the perfect metric for a nation living off borrowed labour and borrowed money to pretend that it’s not in a palliative care ward.
What Inflation Has Really Done
We don’t need bar charts or IMF briefings to see the state of things. You already know it. But just to make the point clear, here’s how much more expensive life really is.
Over the past five years, the UK’s cumulative inflation is about 25 per cent.2 This is not the “oh it’s 3.5%, but we’ll bring it back down” number. It’s the increase over time, the number that’s actually important (and depressing). Life, on average, costs a quarter more than it did in 2020. But even that figure doesn’t tell the real story. Essentials have risen far faster:
• Food: Food inflation has repeatedly outpaced headline inflation, sometimes peaking over 19 % suggesting a cumulative rise of perhaps 30–50 %, even if the precise number is hard to pin down.
• Housing: average house prices up around 25 per cent with mortgage rates and rents rising sharply as interest rates caught up.
• Energy: the real outlier. Household energy bills have roughly doubled since 2020 despite government caps and subsidies. [Correction: not double. The October 2025 cap was 68% above winter 2020/21. Bills did more than double at the 2022-23 peak.]3
• Beer: the most essential of essentials, up 30–40 per cent over five years, meaning you can’t even buy enough to drown your sorrows in.
These are not just numbers on a page; they show how much less you can buy in 2025. Unless your wages have risen by at least a quarter, you’re worse off than five years ago. For most of us there has been only small growth in wages or none at all, so we can now afford less food, heat and fun than before the pandemic.
Why Britain Hurts More
Every country faced global inflation after Covid and the war in Ukraine, but the UK stands out, a beacon of despair for how much worse it has been and how stubborn it remains. Much of the pressure came from outside the UK, forces no single government could control - broken supply chains, energy shocks, a world economy reorganising into protectionist blocs - but Britain’s own decisions made those factors far worse. You will not be surprised to hear that the reasons are structural, not accidental.
1. Energy vulnerability
When global prices spiked, those costs hit quickly. France’s nuclear fleet and Germany’s storage buffers meant they had a cushion; Britain had none. We shut our main gas storage site at Rough in 2017 and rely on imported natural gas for heating and electricity. Decades of under-investment in domestic generation have left us at the mercy of world markets.
2. A weak currency
Sterling’s decline since the Brexit referendum has quietly magnified inflation. Because the UK imports so much food, energy and manufactured goods, every fall in the pound makes those imports more expensive. When sterling fell to near-record lows in 2022 – cheers, Liz and Kwasi – the inflation spike that followed was baked in months before it showed up in shops.
3. Brexit friction
Leaving the single market added hidden costs: customs checks, new certification and border delays. Food importers now deal with more paperwork and higher transport costs.
4. Labour market distortions
One of the key reasons we’re in this mess is that we’ve somehow managed the strange feat of having record net migration and record economic inactivity. Roughly 2.8 million working-age people are currently classified as economically inactive because of long-term illness or disability, a record high, but sectors from care to construction rely on new arrivals to fill gaps. The Treasury quietly welcomes the inflow because more workers mean a bigger GDP and extra tax revenue, even as wages stay depressed and the welfare bill balloons. Cheap labour props up the books in the short term, while long-term productivity and social cohesion pay the price.
5. Policy mistakes
The Bank of England was late to tighten monetary policy (raising interest rates to stop people spending) in 2021, assuming the inflation surge was temporary. When it finally hiked rates, the pain fell heavily on households with variable mortgages, reducing disposable income but not immediately reducing inflation. The government threw billions at furloughs and subsidies, keeping demand alive even though there wasn’t enough being made or done to match it. That flood of money kept people spending, but because the country wasn’t actually producing more, just buying more, prices shot up. Too much cash was chasing too few goods.
Without going too deep into this particular reason (that can be for another time), the financial crisis also left a long shadow. The response to 2008 flooded the system with cheap money and created a decade of misallocated capital, investment chasing asset inflation instead of productivity. Instead of rebuilding industry, upgrading infrastructure or backing innovation, the money went into property, passive funds and financial engineering. It made the already wealthy richer, inflated asset prices beyond reason and left the real economy hollowed out. When inflation finally hit, we discovered that the “growth” of the past decade was largely a mirage built on debt, speculation and spreadsheets, not on anything that actually made or produced value.
Despite combined earnings of nearly £2 million a year and around 150 years of experience between them, the Monetary Policy Committee at the Bank of England seemed incapable of understanding the economy they were supposed to be managing.
6. The cost of debt
We’re nearly at the end, the crescendo, the final scene, the bringing together of all these calamitous and avoidable threads. High inflation and weak credibility. Britain now pays more to borrow than almost any other major economy. Ten-year gilt yields still hover above those in the US and eurozone (correct at time of writing). That filters through to business loans, mortgages and public spending. The state spends more servicing debt than on many departments, leaving little room for investment that could improve productivity or resilience. We’re putting the shopping on the credit card every month and having to pay about £9 billion a month in interest, in a normal month – sometimes it’s more.
7. Structural fragility
OK, last one, and unfortunately there is no happy ending. This is more like the bit where you wake up from the nightmare only to realise you’re still in the nightmare. The real sickness is long-term. We’ve destroyed our productive industries, sold most of them to the highest bidder (China, Taiwan, Australia, France, Canada), and domestic manufacturing has shrunk to a historic low. We have preferred quick financial gains to long-term returns. Utilities are privatised but under-regulated, infrastructure is old. The UK buys what it used to make (wait until you hear about CBAM), finances the gap with debt, and then wonders why it feels poorer each year.
The Human Side of Numbers
Statistics disguise the texture of the decline. Inflation isn’t just a line on a chart; it’s the quiet stress of choosing between heating and groceries, the end of spontaneous pub nights, the erosion of small luxuries that make ordinary life feel civilised. When the government points to “rising disposable income,” it counts nominal pay packets, not the shrinking real value inside them. [Correction: the official disposable income figure is already adjusted for inflation. The fair point is that it’s an average.]4
What has happened since 2020 is not merely a bout of inflation but a redistribution of wealth: from savers to debtors, from workers to asset-holders, from renters to landlords. Those who own property or equities can weather higher prices; those who rely on wages can’t. However, it is important to say that most of this has come about through government mismanagement, bad policy, a complete lack of understanding of economics and the use of human beings as a fiscal lever to balance the books when the numbers don’t add up. It’s important to note that this isn’t capitalism at its core, and as seductive as the chants of “tax the rich” are, they won’t fix this problem. The problem is deep and difficult; there are no quick fixes.
A Mirage Mistaken for Progress
A 1.3% growth forecast and a mild inflation fall next year is a drop in the ocean. All it does is offer politicians a lifeline, a story to spin, but it’s a mirage. GDP growth driven by immigration and nominal wage rises is not prosperity. [Correction: GDP growth is measured after inflation, so nominal pay rises don’t inflate it. The point stands for population growth.]5 If every extra pound buys less, if every new worker dilutes output per head, the headline growth is at best a dream, at worst a downright lie.
Britain’s problem is not that the economy isn’t expanding; it’s that the expansion produces so little improvement in individual lives. Real incomes are falling, public debt is rising, and confidence in national competence – economic, political, administrative – is at an all-time low. [Correction: real incomes were stagnant, not falling. ONS figures published the day before this piece showed real pay up around 1% on the year.]6
Until the government stops celebrating GDP and the media stops parroting the message and starts focusing on productivity, energy independence, per-capita wellbeing and growing the pie for everyone to share, this is going to get worse and worse until who knows what. This isn’t going to come easy. It means rebuilding what we’ve let decay – training people, producing energy, making things again, and fixing the basics – getting back to competence.
“If liberals won’t enforce borders, fascists will,” warned the Canadian political commentator David Frum. The same warning applies to economics: if competent governments won’t manage prosperity, reckless ones will.
Disclaimer:
The views expressed in this essay are entirely my own. They do not represent the opinions or positions of any organisation or project I’m associated with.
This piece reflects personal interpretation and commentary based on publicly available data and reporting from sources such as the ONS, IMF, and the House of Commons Library. While every effort has been made to ensure accuracy at the time of writing, this should not be taken as financial or investment advice.
ONS, real GDP per head (series IHXW), version released 13 October 2025: £10,056 in Q4 2019 and £10,137 in Q2 2025; £40,123 for 2019 as a whole and £40,172 for 2024. “Sliding backwards” stands: the OBR’s March 2025 forecast said real GDP per person fell 0.9% in 2023 and 0.1% in 2024.
Note added October 2026: the 25% figure matches Nationwide’s index, £215,897 in January 2020 and £271,995 in September 2025, up 26%. The ONS and Land Registry index linked above showed less, about 17%: £231,185 in January 2020 and £270,000 in July 2025, the latest available when this was written. The two indices measure prices differently.
Ofgem’s cap for a typical dual-fuel household paying by direct debit was £1,042 a year from October 2020 and £1,755 from October 2025, a rise of 68%. Ofgem has since lowered the usage it assumes for a typical household, so the like-for-like rise is somewhat larger, but still short of double. Under the Energy Price Guarantee from October 2022 the typical bill was £2,500, more than double the 2020 level. The Commons Library briefing linked above puts the July 2025 cap “around £500 or 41% above the winter 2021/22 levels”.
Real household disposable income is adjusted for inflation (the “real” in the name). In the ONS release of 30 September 2025, it rose 0.2% per head in Q2 2025 after a 0.9% fall in Q1.
Headline GDP growth is published in chained volume measures, which strip out the effect of rising prices. Higher nominal pay does not, by itself, raise it.
ONS, Average weekly earnings in Great Britain, 14 October 2025, covering June to August 2025: real annual growth of 0.9% for regular pay and 1.2% for total pay using CPI (0.6% and 0.8% using CPIH). Over the longer run the typical worker barely kept up: median full-time weekly pay rose from £585 in April 2019 to £728 in April 2024, up 24.5%, against prices up 24.1%. “Stagnant” is the accurate word.