A health check of Britain’s “economic well-being” has produced mixed results, with weak growth in output per capita but cheerier consumers and buoyant growth in real household disposable income.
Heading the ONS report measuring well-being is the figure for growth in GDP per capita, the value of goods and services produced by the economy divided by the number of people living there. This is a more accurate measure than simply adding up GDP, because it removes the distorting effect of population growth – it is possible to report impressive output growth simply by expanding the population, but without increasing GDP per capita.
Alternative figures marginally brighter
Because these are “real” figures, taking account price rises, they remove a second distorting effect, that of inflation.
Real GDP per capita grew by 0.1% during the first quarter of this year, a slowdown of 0.1 percentage points compared with the growth rate in the fourth quarter of 2017. Between the first quarter of 2017 and the first quarter of this year, real GDP per capita grew by 0.5%, down 0.2 percentage points on the growth of 0.7% between the fourth quarter of 2016 and the fourth quarter of 2017.
A slightly different measure, real net national disposable income (NNDI) per capita, gave a marginally brighter picture. The growth in NNDI per head has two significant differences with real GDP growth per capita. One is that GDP includes income that may be sent abroad, to foreign business owners or investors, while NNDI does not.
Unlike GDP, NNDI does adjust for depreciation.
Household income figures shine
Real NNDI per capita decreased by 0.3% between the first quarter of 2017 and the first quarter of 2018, against the 0.5% rise in GDP per capita over the same period. However, NNDI per capita rose by 0.6% in the first quarter of this year compared with the last quarter of 2017.
In some ways, the star performer among indicators was real household disposable income. Adjusted for inflation, it measures the amount of money households have left to spend or save after direct taxes, such as income tax, have been deducted, along with pension contributions and interest payments.
It takes into account earnings from employment, from private pensions and from investments, as well as cash benefits from the state. In the first quarter of this year, it grew by 1.4% compared with the first quarter of last year, the highest year-on-year increase since the fourth quarter of 2015.
No wonder, perhaps, that people seem more cautiously optimistic. The measure of people’s subjective assessments of their own financial situation over the last 12 months registered an improvement.