UK savings rate hits lowest point on record

Britons dipping into their reserves to maintain living standards as economy tightens and taxes rise

BRITISH families are saving less than ever before amid the longest period of falling real household incomes in 40 years, official figures show.

The Office for National Statistics (ONS) said the UK’S dominant services sector expanded at the slowest quarterly pace in two years at the start of 2017. Household spending growth slowed amid higher inflation, although the data also suggested growth was likely to pick up in the second quarter of this year.

The ONS said the household saving ratio, which measures the amount available to save as a share of disposable income, halved to 1.7pc in the first quarter of 2017, from 3.3pc in the final quarter of 2016. This is the lowest rate since records began in 1963 and suggests Britons have been using savings to maintain their standard of living.

According to the ONS the decline reflected “relatively strong consumption volumes, increasing consumer prices and subdued wage growth”.

Higher tax payments also ate into disposable incomes, the ONS said, and the level of real household disposable income fell by 1.4pc in the first three months of 2017 compared with the previous quarter, representing the third consecutive contraction.

The last time this income measure fell for three straight quarters was between the end of 1976 and the start of 1977, according to the ONS, while the decline in the first quarter of 2017 was the biggest in four years.

Household spending rose by 0.4pc quarter on quarter, representing the weakest growth since 2015.

Chris Williamson, chief business economist at IHS Markit, said: “The squeeze on household spending is no surprise, given recent weak wage growth and rising inflation.

“The squeeze may well continue through the rest of the year, as inflation looks set to rise further. The big question is whether other parts of the economy can take up the slack from squeezed households.”

It came as the ONS confirmed that the UK economy grew by 0.2pc in the first quarter of 2017, in line with expectations and down from the 0.7pc expansion in the fourth quarter of 2016.

The data also suggested the services sector growth of 0.2pc month on month in April put the economy on course to grow by around 0.4pc in the second quarter. The services and construction sectors powered the expansion in the first quarter, the ONS said.

Growth in services, which powers more than three quarters of UK output, was revised down to 0.1pc, from 0.2pc over the period. This is the lowest quarter-on-quarter growth rate since the first quarter of 2015.

Official figures also showed the current account deficit, which includes trade, widened to 3.4pc of GDP in the first quarter, from 2.4pc in the final three months of last year.

The data also confirmed business investment rose 0.6pc in the first quarter. However, Victoria Clarke, an economist at Investec, urged caution. “Given the dominance of consumer spending and the squeeze that we envisage, it would take a big surge in the likes of business investment to overturn the consumer squeeze to growth,” she said.