Gray old Blighty may still be damper than America and many parts of Europe, but it is no longer poorer. Over the past several years, Britain’s per capita income has roared ahead of its Continental neighbors’. Now, for the first time in a decade, Britons have become more prosperous even than Americans. According to the British consultancy Oxford Economics, per capita income in Britain will reach $48,000 in 2008, compared with $47,300 in the United States. That’s about 8 percent higher than France and Germany, reversing the position of the early 1990s, when Britain was emerging painfully from its last recession. For good measure, it’s comfortably ahead of its major rivals in Asia and leads the world’s economic heavyweights. “Britain just feels like a completely different country from 1992,” says Adrian Cooper of Oxford Economics. “This is now a world-leading, dynamic place in a way that it never was before.”
No one who’s visited London in the past decade could doubt it—$10 lattes, $2 million studio flats and oligarchs escorting supermodels abound. But Britain’s prosperity has expanded far beyond its glitzy expatriate-packed capital. Many Northern cities are booming, and the middle class throughout the nation spends in a way that would have shocked their postwar predecessors. British motorists now buy more Mercedeses and BMWs per head than Americans. Handbag sales are up 146 percent since 2002. In the past four years, spending on long-haul holidays to the Caribbean and the United States has risen more than 40 percent. Spending on restaurants is up 18 percent since 2002.
The plain truth is that the once frugal British consumer is enjoying the fruits of an economy that’s seen consistent growth for a record 15 years. Thanks go in large part to the City. During the past three years, a sector worth 10 percent of the economy has contributed 30 percent of GDP growth. London is now arguably the world’s most global financial capital.
But simple comparisons deceive. More average Britons remodel their kitchens and wear $200 jeans than ever before, but their pleasure is built at least in part on a greater willingness to access easy credit. “The fact is that it’s easy enough to have a high standard of living if you are willing to borrow,” says Daniel Gros of the Brussels-based Centre for European Policy Studies. As in America, household debt in Britain is now running at a record high, with the spendthrift Brits actually edging ahead, thanks in large measure to the rocketing house prices of recent years.
Of course, the dollar’s weakness seriously distorts the picture. The American shopper still enjoys a hefty advantage over the British when it comes to how much his greenback will buy. According to figures from the International Monetary Fund, the average Briton was barely ahead of European neighbors in terms of purchasing power, and trailed Americans by more than $7,000 last year. Everyday prices in Britain are now scarily high, as demand races ahead of supply. Think too of labor and land costs in crowded cities. Michael Saunders, an economist at Citibank in London, says, “In the short term, we [British] may be rich, but only if we go to New York to do our shopping.”
The picture of living standards is also skewed by the relative benefits of the welfare state. “Because purchasing-power figures tally mainly market prices, they probably underestimate the standard of living in France and Germany, where you don’t have to pay for a lot of the services, like health or education, that you need to buy in the U.S.,” says John Schmidt of the Center for Economic and Policy Research in Washington. Higher earnings in Britain or America are often bought through extra time at the treadmill; workers probably put in at least three hours a week more than French or German equivalents. No wonder they need all that champagne.
