The crisis is over, our banks are stronger and our equity market is higher. The UK is celebrating as one of the fastest-growing developed economies in the world. But are we better off? The headline GDP figure hides an increasing disparity between the rich and the poor both at home and overseas. It is striking that the richest 1 per cent of the UK are now wealthier than the poorest 50 per cent combined. This gap has been growing and was exacerbated by the extraordinary response to the crisis.
Some £375bn has been injected into the UK economy through quantitative easing, but where has it all gone? Tracing the money flow shows us how these billions moved from the Bank of England's coffers to banks, pension funds and other institutional investors, buying up vast swathes of the government bond market, pushing prices up and yields down. It is this that was meant to stimulate the economy, making it less appealing to save and more appealing to borrow and spend – a tricky thing to do for an economy accustomed over decades to an overreliance on credit. Quantitative easing certainly stimulated asset markets. The billions that went from the banks to investors to buy the bonds was soon recycled into more attractively valued equities and property-boosting prices.
All well and good for the "haves" with their homes and equity portfolios. But the "have nots" haven't benefited from asset price inflation and have been hit by the government's spending cuts. It is no coincidence that the Trussell Trust reported a 163 per cent rise in the number of people using its food banks in the past 12 months.
What happens now? An economic recovery that has seen increases in asset values coupled with rising inequality is not a particularly stable footing for the next leg of the recovery – or, more importantly, a healthy, functioning society. In the next stage, we would expect a normalisation of interest rates. According to the housing charity Shelter, UK families spend more than 40 per cent of their income on rent, mortgage payments and other living costs. Any increase in these could severely squeeze households, placing more people in the charitable hands of the Trussell Trust.
Our policymakers will be treading a fine line between increasing interest rates quickly enough to manage the inflation in asset prices (particularly the housing market) and slowly enough to maintain spending by the indebted UK consumer – and without derailing the recovery. All agree that the outlook for government spending remains bleak, particularly after the next election. Those dependent on the state are unlikely to find their financial lives any easier, despite the billions invested, the market recovery and the much-celebrated GDP figures.
Kate Rogers is client director at Cazenove Charities