The American economy continues to baffle experts, growing at 2.8 per cent annualised in the fourth quarter, while the UK’s own growth, though resilient, lags behind at just 0.4 per cent for the same period. But what does this divergence mean for the wage earner in Manchester or the factory worker in Detroit?
To understand, I spoke to Dr. Fiona Mills, a labour economist at the London School of Economics. "The US has unleashed a fiscal stimulus that dwarfs anything we've seen post-pandemic," she said. "But that isn't translating into lower grocery bills for the average American. In fact, inflation in the States is stickier than ours, hovering around 3.1 per cent in December. The Federal Reserve has held rates higher for longer."
That higher interest rate environment is a double-edged sword. On one hand, it tames inflation. On the other, it chokes the housing market. Compare that to the UK, where the Bank of England's base rate has been cut twice to 4.5 per cent, offering some relief to mortgage holders. But Kathy Langley, a single mother in Hull, told me her fixed-rate deal ends in June. "I'm terrified," she said. "Even with rates coming down, my new mortgage payment will be £300 more a month. The council tax just went up again. My wages haven't kept up."
Kathy's story is not unique. The current account deficit in the UK has narrowed, meaning we are exporting more than before. But the balance of trade masks the misery on the high street. Unions are gearing up for a summer of strikes, the usual sign that purchasing power is being squeezed. The TUC reports that real wages are still 1.3 per cent below their 2008 peak. That is stagnation with a capital S.
Meanwhile, in the US, job creation has been robust, with unemployment at 3.7 per cent. Yet the cost of living crisis there has fuelled a wave of unionisation in sectors like retail and logistics. The Starbucks and Amazon workers movements are spreading. The US economy may be defying odds, but it is defying them on the backs of underpaid workers.
What can we learn? Firstly, the UK's slower growth is not necessarily a failure. It is a difference in fiscal composition. The UK has focused on balancing the books, which has meant stingier public sector pay rises. The US has borrowed heavily, spurring demand but also creating an asset boom that benefits the wealthy. The Dow Jones is up 12 per cent this year. The FTSE 100? Flat.
Secondly, resilience is not the same as thriving. While the UK avoided a recession, many households feel like they are in one. The regional divide remains stark. London's economy grew by 1.2 per cent, but Yorkshire and the Humber saw growth of just 0.1 per cent. That is the real economy of the North the one that feels the chill of every policy miscalculation.
Dr. Mills concluded our conversation with a warning: "If the Bank of England cuts rates too fast, we risk a repeat of the Truss mini-budget crisis. But if it holds tight, we see more families falling into poverty. There is no easy path."
So as analysts in London and Washington pore over the data, let us not forget that behind the numbers are millions of kitchen tables where the price of bread, milk, and energy is the only economic indicator that matters. The US may defy odds. The UK may be resilient. But for the working person, the odds remain stubbornly, painfully stacked against them.
