An economic trend that ensured British prosperity for the last 136 years just went into reverse

Millennials, falling behind.REUTERS/Ilya Naymushin

LONDON — In the 20th Century, a predictable economic pattern emerged in the UK: Each new generation’s income grew at a pace of roughly 50% more than their parents’ did. From 1881 onwards, Britons only became more prosperous as the decades went by. Every parent could expect their children to do better than they did.

But data published on Monday by the Resolution Foundation show that for the first time in more than 100 years the current generation of workers — millennials — are doing worse than the generation before them, Generation X. Generational income growth has stopped.

“Members of the youngest of the generations to have reached adulthood – millennials – have not to date secured incomes that are any higher than those of generation X at the same ages,” the foundation says.

The result is that today’s pensioners — people who in theory are supposed to be downsizing and living off their savings — are now richer than today’s earners, the foundation says:

“From 2011-12 onwards, the living standards of the typical pensioner after housing costs have actually been higher than those of the typical non-pensioner. Having been £70 a week lower than typical working-age incomes in 2001-02, typical pensioner households now have incomes that are £20 a week higher than their working-age counterparts.”

Here is the data showing millennials falling behind Gen-X:Resolution Foundation

The financial crisis of 2008 and the recession that followed is largely — but not entirely — responsible for the end to this 100-year trend, as this chart shows:Resolution Foundation

The recession clearly had a negative effect on millennial income growth, causing a setback to an entire generation’s wealth. But millennials are still entering the workplace and many of them started their careers after the recession — and yet still, they are behind. The foundation’s income projections for the next few years, based in part on the Office for Budget Responsibility’s assumption of productivity growth of 2% annually, indicate that the millennials may remain behind Generation X until they hit age 35.

The cost of housing is a major factor, the foundation argues. Here is its generational breakdown of property ownership:Resolution Foundation

As the youngest generation, millennials cannot yet expect to have property ownership rates that compare with the boomers. But — as Business Insider has previously reported — they are still “significantly lower” on the ladder than where the historic average would suggest.

Those two factors — stagnant income growth and inability to access the property market — combined with the rampant wealth creation of Britain’s property market means you have a continuation of the trend that divides Britain into two distinct classes: Those who own houses and those who are getting poorer. Except now we know there is a distinctly generational aspect to this divide.