Afternoon all,

From bond market turmoil to AI wiping out humanity, it’s been a rather depressing week. So, I’m pleased to bring you some optimism, keep reading for why not to worry about greedflation, and why progress might have been bigger than previously measured.

We’ve also invented a brilliant new chart to celebrate – a measure of growth in every postcode. The last Parliament achieved growth in 53 per cent of postcodes, so 100 per cent would be a considerable step up.

Have a great weekend,

Ruth

Chief Executive
Resolution Foundation

Network neuroses. Recently the tide seems to turning slightly against social media companies – with the news that Australians could soon switch off their algorithms and the £18 billion payout agreed by Meta. It’s about time too, with this paper finding (gasp) that social media is bad for youth mental health. It uses over 2 million smartphone-based communication records to examine the networks of university students and assess their impact on depressive symptoms. Interestingly, it finds that digital communication is more harmful in the context of social inequality. Communicating across income gaps left students more depressed, whether they were surrounded by more affluent or more deprived peers. Turns out, inequality gets us down.

Catalogue of errors. In 1900 a fridge was a large wooden box filled with ice. Thirty years later they ran on electricity, and today many have ice makers and other gizmos. This paper argues that we’ve been undercounting these types of quality improvements in goods, and that once you do, inflation was a lot lower and living standards growth a lot higher in the US than has been traditionally thought. Using 5.1 million product listings from Sears catalogue between 1900 and 1990, quality change accounts for around half of the cumulative increase in prices, meaning real goods consumption rose 39x rather than the 10x implied by official deflators. The quiet march of the ice maker continues.

Pump fiction. This new paper puts the ‘greedflation’ thesis to the test for the UK fuel market in the aftermath of Russia’s invasion of Ukraine. With the help of data from 8,000 forecourts and 200m searches from PetrolPrices.com, the authors find the opposite of gouging: as wholesale costs spiked, diesel margins briefly turned negative, meaning pump prices rose by less than retailers’ input costs. The reason is us. Daily searches on the comparison site jumped more than twentyfold as consumers hunted the best deals, forcing retailers to restrain their margins for fear of losing out. Some small solace for the next spike: you (probably) aren’t getting ripped off.

We’re for welfare. Surprise! Public support for spending on disability benefits remains strong across the political spectrum, according to the latest publication from the British Social Attitudes Survey. In 2025, only 7 per cent of people thought we should spend less on disability benefits, while nearly half (49 per cent) felt we should spend more (even if it might lead to higher taxes). This isn’t new – indeed there have been recent declines in support for spending on disability benefits. Over the last four decades of responses support for disability benefit cuts has never exceeded 7 per cent. It is sometimes quipped that disability benefit reform is hard for this government because of backbench Labour MPs. The truth is that spending less on disability benefits remains deeply unpopular across the political spectrum – only 11 per cent of Reform voters support cuts.

Something for the weekend | Growing pains

This Monday John Healey delivered his first major speech as Chancellor. It was a classic but welcome move to focus on his “determination for growth”. As expected, fiscal devolution will be at the heart of plans for “growth in every postcode” (more on that in Chart of the week). Healey broke the rest of his growth strategy into investment, innovation and jobs, promising more of each.

• There’s scope for boosting investment further within the fiscal rules. Healey tweaked the British Business Bank and the National Wealth Fund – but in the Budget should go further and scale them up.  Increasing the NWF’s annual investment to £8.8 billion by 2030-31 would be enough to match the European Investment Bank’s pre-referendum level of investment. Plus, as Ben Zaranko noted, HMT’s decision to cut the discount rate will make investment in long-term projects easier – even if it’s because we’re more pessimistic about future growth.
• On innovation, the Chancellor focused on supporting new technology and scale-ups that can become UK unicorns. That’s all good, but we also need to think about the pace of change across the economy. Over the last twenty years our economy has actually been changing shape at historically slow rates. We need more dynamism as well as more innovation, but that is a much tougher political message than the one we heard on Monday.
• Healey pledged more jobs which would deliver dividends for living standards. Our employment rate is high internationally, so it’s great to see the focus on young people who, alongside the over 50s, are the UK’s underemployed age groups. Participation in education remains an underdiscussed factor in our NEET rate, and is fundamental to determining both the skills, and the living standards of future generations.

Healey has made his priorities clear. Good. The biggest gaps, to my mind, were trade and energy costs. Two big drags on the economy, largely beyond the government’s immediate gift, but ones which, alongside the coming fiscal conundrums, we cannot ignore in charting a path to higher growth.

Chart of the week

This Government has been clear that they will deliver growth in every postcode. This nerve-janglingly-specific pledge got us wondering how far we are from seeing country-wide growth by that metric? So, in this week’s chart we’ve plotted how the last Parliament performed on living standards growth in each postcode. As the worst Parliament on record this is, to be fair, a low bar. We’ve arguably gone easy on them by using the 121 high-level postcode areas in the UK (the first two letters of your postcode). Good news for Burnham’s patch – Manchester grew (just) by an average of 0.32 per cent each year. Bad news for Aberdeen, where income fell by an average of 1.24 per cent a year – despite Scotland seeing growth of 0.28 per cent (read how we think Aberdeen’s prospects can be boosted here). Northern Ireland experienced the highest average growth of 1.28 per cent. Overall, there is no big north south divide (at least within England) with the collection of many London postcodes varying hugely but falling by a touch more overall than the UK average. Nonetheless, Burnham has pledged to turn this map from 53% blue to 100% – while presumably hoping the impact on the electoral map will be the opposite.