Seventy years on from the crowning of Queen Elizabeth II, her son Charles III will ascend to the throne on Saturday 6 May. The coronation will mark the beginning of a reign that looks far different at the start to that of his mother’s, as we look at some of the key economic markers and graphs.
Fit for a King – The cost of your castle
House hunters on the eve of King Charles’ coronation will be paying a princely sum for their new home in comparison to those 70 years ago. The average house price today is 130x higher today than in 1953. Figure 1 shows that prices maintained relatively flat for the first 10 years of the Queen’s reign, but have seen sharp rises in the last 30 years. Home ownership is also considerably higher than the last time that Britain had a king. The nation has been transformed from a nation of renters to a nation of homeowners, broadly, with 15 million of us owning our home compared to 4 million in 1952. However, to go back to the last time homes were as expensive relative to wages as they are today, you would have to travel back in time to 1876, when Queen Victoria wore the crown. Currently, the average British home is approximately 9x wages, which is more than double the ratio in 1952
This could be of interest, your majesty
Up until the last year or two, many of us have become used to low, 2-3% inflation around the developed world. Following the bout of fiscal and monetary stimulus during and following the Covid pandemic things have changed of course, with CPI inflation currently in double digits.
As the chart above shows, however, while we may have become used to a relatively benign inflation environment for some time, periods of low inflation are perhaps the exception rather than the rule. The UK saw a number of more challenging inflation environments during parts of Queen Elizabeth’s reign, particularly in the 70s, 80s and 90s.
And, while a Bank of England interest rate of 4.25% is the highest we have seen in a while, over Elizabeth II’s reign interest rates hit a high of 17% (1979). The low was 0.1% (2020).
The important question now is where will inflation go from here? There are a number of long-term trends, such as technology (e.g. better price discovery through online shopping, which provides some downward pressure on prices), globalization (e.g. the flow of cheaper labour and goods into developed economies) and demographics (ageing populations) which have helped keep inflation low for the past few decades. These forces still remain strong. Then again, could something be changing? Globalisation, for example, is one of these macro trends which could be reversing, with geopolitical tensions running high, and an effort in many economies to relocate jobs closed to home.
The Royal Household
Household costs have also seen a rise, but spending patterns have also changed. Britain is no longer a nation of smokers, with only 1% of spending going on tobacco in comparison to 6% in the 1950s. However, drinking habits have largely remained stable, with spending on alcohol only dropping 1% to 2%. Those still enjoying a pint of beer are paying a lot more for it though. The graphic below demonstrates the relative costs of a draught pint of lager. Although Britain may be more fashion conscious today, Britons are spending less of their income on clothing. Clothing accounted for a tenth of spending in 1952, but this has now fallen to 4% as clothing has become more affordable.
The basket of good used to calculate the inflation rate has changed over the past 70 years as life in Britain has embraced strides forward in technology. It has been out with the sowing machine, table wringer, writing paper and ink. Meanwhile, it has been in with the fridge/freezer, security camera, smartphone handset and PCs. There have also been changes in views on health. Pipe tobacco was a staple with which Brits would have celebrated the coronation of the Queen, but now the e-cigarette has taken the spotlight. There have been changes in fashion sense too – no longer are the corset and smocked frock components of the basket! There are many items in the basket that would have seemed to be the stuff of make believe had you told those constructing the basket in 1953. Television subscription packages, package holidays and various takeaways comprise the 2023 basket, along with university tuition fees!
Long live the King, and his subjects