The economy’s growing - so why don’t we feel better off?

Growing the economy has been the government’s number one priority since the election.

Following over a decade of sluggish growth, ministers believe this is the key to improving living standards and putting more money in people’s pockets.

The idea is that a growing economy means:

• businesses have more money to employ people
• people spend more money, so businesses can be more profitable
• employers can pay higher salaries
• there’s more tax revenue for the government, so there’s more to spend on public services

This week, there was positive news that the UK economy grew by 0.1% between October and December.

But you might be forgiven for thinking “so what?”

After all, 0.1% growth is minimal at best, and even with stronger growth figures, it can take time for any benefits to be felt on the ground.

So, for all the headlines about growth and gross domestic product (GDP), what real, tangible impact does it all have on you, your family and your financial situation?

Living standards declining

If there’s a more relevant statistic that reflects you and your life, it’s GDP per head - a measure of living standards.

Essentially, it breaks down the country's GDP to an amount per person, so the higher the figure, the better off the average person is.

But this figure has fallen in the last five years from £9,316 to £9,218.

And in 2024 alone, GDP per head fell by 0.1%.

The Resolution Foundation points out that if economic growth in the UK had matched the G7 average over the last five years, GPD per head would be £450 higher today.

So, in that sense, there’s a clear logic behind the government’s push to achieve growth.

But that doesn’t necessarily stop the national GDP figure from feeling remote and irrelevant to many people.

Instead, we’re looking at our weekly shop getting more expensive, working out where we can make savings, and bracing ourselves for energy and water bills going up.

So any positive headlines on growth aren’t exactly making us sit up and celebrate.

People need to feel better off

Feelings matter, and the government clearly has a mountain to climb if people are to genuinely feel better off any time soon.

Chancellor Rachel Reeves has insisted that the government is going “further and faster” to “put more money in people’s pockets”.

"That is why we are taking on the blockers to get Britain building again, investing in our roads, rail and energy infrastructure, and removing the barriers that get in the way of businesses who want to expand,” she said.

But all these are long-term goals, and the Resolution Foundation believes the government must do more to ensure improvements can be felt sooner.

“In recent weeks, the chancellor has set out welcome plans to boost longer-term growth,” said senior economist Simon Pittaway.

“But short-term action may be needed to get the economy out of its current slump.”

GDP figures do matter.

But they only show what’s happened in the past and tell you nothing about the future, and they don’t reflect issues such as income inequalities and people’s wellbeing.

So it’s perhaps no surprise that they’re not the metric households are keeping a close eye on from month to month.

Support is available

If you’re struggling to make ends meet and have very little cash left over at the end of the month, it might be time to ask for help.

We can check you’re getting all the benefits you’re entitled to, create a realistic budget or suggest debt solutions to help you get back on your feet.