Britons' savings at record low as household incomes drop
Households in Britain have run down their savings to a record low in an attempt to maintain their spending in the face of falling living standards, according to official figures.
The Office for National Statistics reported that during the first three months of 2017 the savings ratio – a measure of how much money individuals are putting away for retirement or a rainy day out of their disposable income – fell below 2% for the first time.
But the ONS added that, despite the fall in the savings ratio, individuals also spent less in the shops and on going out, contributing to a sharp slowdown in the UK economy, from 0.7% growth in the final quarter of 2016 to 0.2% in the following quarter.
Chris Williamson, chief business economist at IHS/Markit, said: “The main drag seems to have come from weaker household spending growth, which dropped from 0.7% late last year … which can, in turn, be at least partly linked to a third consecutive quarterly fall in real household disposable income – its worst run since the 1970s, according to official statisticians.”
Frances O’Grady, the TUC general secretary, said: “These figures make for grim reading. People raiding their piggy banks is bad news for working people and the economy. But with wages falling as living costs rise, many families are having to run down their savings or rely on credit cards and loans to get through the month.”
The UK’s balance of payments also fell deeper into the red in early 2017 as the trade gap in goods widened and the surplus in services widened.
The one bright spot for the government from a downbeat set of economic statistics was news of a modest pick-up in activity in the services sector in April. With services accounting for 79% of the economy, this raised the prospect of overall growth rising in the second quarter. Williamson said he was expecting growth of 0.4% in the three months ending in June.
Darren Morgan, ONS head of GDP, said: “GDP growth for the first three months of 2017 remained unrevised at 0.2%. Growth was driven by business services and construction, partially offset by declines in some consumer-focused industries, such as retail sales and accommodation.
“The saving ratio has fallen again this quarter to a new record low, partly as a result of higher tax payments reducing disposable income. Some of the fall could be as a result of the timing of those payments, but the underlying trend is for a continued fall in the saving ratio.
“Services output in April was up slightly on the month, with the largest contribution to the month-on-month growth coming from the retail trade.”
The balance of payments – which measures trade flows, income from investment and payments to international bodies such as the EU – was in deficit by £16.9bn in the first quarter of 2017, up from £12.1bn in the previous three months. The ONS said the UK’s poor trade performance subtracted 0.8 percentage points from growth in the first quarter.
Some deterioration had been expected in the City after the sharp narrowing of the deficit late last year and analysts said the fall in the value of sterling – which makes exports cheaper and imports dearer – should help the balance of payments.