Will the UK overtake the USA on living standards?

New research published by Oxford Economics forecasts that UK GDP per capita will overtake the USA in 2008 for first time since the 19th century.

This is reported in this article on the BBC news website: http://news.bbc.co.uk/1/hi/business/7174372.stm. The UK’s nominal (or money) gross domestic product (GDP) is expected to rise to £23,500 per person during 2008, £250 more than the £23,250 GDP per head predicted for Americans. But this feeling on superiority is unlikely to last for long. The OEF data is expressed at market exchange rates and, when adjustments are made for variations in the average cost of living between different nations - the so called purchasing power parity measure - then the USA still emerges on top. Overall, goods and services are cheaper in the US, meaning they have stronger purchasing power. That said, the income gap does seem to be narrowing. The Financial Times reports today that ‘Even measured at purchasing power parity, the UK is narrowing the gap - International Monetary Fund figures show it lagged US living standards by around 17 per cent in 2007, compared with 21 per cent a decade ago.’ According to the OEF report; ‘In 1993, following the last major recession and the UK’s ejection from the ERM, GDP per head in the UK was 34% lower than in the US, 33% lower than in Germany and 26% lower than in France.’ Sixteen years of continuous economic growth after the recession of the early 1990s has been perhaps the major factor behind the improvement in our relative living standards. And more recently the surge in sterling’s value against the sickly US dollar in the currency markets has swung the per capita income levels in our favour with £1 buying more than $2 late last year. The UK also enjoys longer holidays and greater access to free healthcare through the NHS although the average tax burden for individuals is lower in the United States. Suggestions for wider reading Standard of living in UK better than in USA (Daily Telegraph)http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/01/07/bcnukliving107.xml Oxford Economicshttp://www.oef.com/OE_Main.asp The TimesUK living standards outstrip UShttp://business.timesonline.co.uk/tol/business/economics/article3137506.ece Tutor2u revision presentation on living standards http://www.tutor2u.net/economics/presentations/a2economics/macro/StandardofLiving/default.html