50% Off! Beat the market in 2025 with InvestingProCLAIM SALE

Why UK millennials are unlikely to match Gen X and boomers’ earnings growth

Published 19/12/2024, 11:59
© Reuters.  Why UK millennials are unlikely to match Gen X and boomers’ earnings growth

Invezz.com - For UK millennials, financial prosperity comparable to that of Gen X and baby boomers remains elusive.

A recent study by the Institute for Fiscal Studies (IFS) highlights a disheartening trend: income growth for working-age Britons has stagnated, lagging behind countries such as the US and Germany.

This marks a significant shift from the late 20th century when the UK experienced robust growth in disposable income, offering millennials a starkly different economic reality than their predecessors.

UK disposable incomes lag behind global peers

The UK’s disposable income growth has been underwhelming in recent years, placing it near the bottom of a league table dominated by developed nations.

Between 1995 and 2007, working-age incomes in the UK surged by 41%, far outpacing countries like Sweden, Italy, and the US.

This momentum slowed dramatically post-2007, with working-age incomes growing by just 6% between 2007 and 2019.

In contrast, incomes in the US and Germany grew by 12% and 16%, respectively, during the same period.

The IFS attributed this slowdown to a combination of global and domestic factors.

Events such as the 2008 financial crisis, the COVID-19 pandemic, and ongoing energy price surges have taken a toll on economies worldwide.

Even accounting for these disruptions, the UK’s economic performance has been notably lacklustre, dropping to 11th place out of 14 wealthy nations in terms of income growth.

A glimmer of progress emerged during this period, with income inequality narrowing.

Wage growth among high-income earners (90th percentile) increased by just 1.5% between 1995 and 2007, while low- and middle-income earners experienced faster income gains.

Yet, this redistribution was insufficient to close the generational gap, leaving millennials far behind in wealth accumulation compared to Gen X and baby boomers.

What’s stalling the UK’s economic engine?

The IFS refrained from pinpointing a single reason for the UK’s poor income growth but acknowledged a mix of structural and policy challenges.

Brexit, often cited as a contributor to economic sluggishness, may not fully explain the trend, as much of the analysis predates the UK’s departure from the EU.

The Office for Budget Responsibility estimates that post-Brexit trading arrangements will reduce UK productivity by 4% in the long term, a projection that raises concerns about future growth.

Political factors have also come under scrutiny. The Conservative Party’s austerity policies, implemented during its 14-year tenure, are a contentious topic.

While the coalition government between the Conservatives and Liberal Democrats sought to restore public finances after the Great Recession, critics argue that these measures stifled economic growth and deepened the slowdown in living standards.

Despite these domestic issues, external forces like global productivity stagnation have played a significant role.

Economies across the developed world have struggled to sustain pre-2008 levels of growth.

Still, the UK’s decline from a leader to a laggard in income growth raises questions about its unique vulnerabilities and policy decisions.

The IFS study provides a sobering reality check for millennials.

The dramatic slowdown in disposable income growth since 2007 suggests that the generation is unlikely to experience the economic boom times enjoyed by their Gen X and baby boomer predecessors.

Rising costs of living, stagnant wages, and diminished opportunities for wealth accumulation continue to weigh heavily on the prospects of younger generations in the UK.

This article first appeared on Invezz.com

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.