Saving rate recovery eases fears over spiralling consumer debt

HOUSEHOLD savings are in better shape than feared and business investment is growing more strongly than expected, raising hopes that the UK economy is not as vulnerable as was previously thought.

Overall, the economy grew by 0.3pc in the second quarter of the year, up from 0.2pc in the first quarter. Year-onyear growth has been revised down to 1.5pc, however, from the 1.7pc estimated initially. That is the weakest annual growth rate since the start of 2013.

The updated figures from the Office of National Statistics (ONS) showed saving levels to be 5.4pc in the three months to June, an increase similar to that seen in the final quarter of 2016, when it was 5.2pc. The dip, down to 3.8pc, seen in the first quarter in 2017 is mostly attributed to one-off changes in the taxation system.

The big change came largely because more workers are now self-employed, so officials need to raise their estimate of dividend payments going into households’ pockets.

Analysts had been worried by the fall in savings – at the same time as a rise in consumer borrowing – because it indicated households may be financially stretched. As a result the stronger figures show families are not in such a precarious position.

“This suggests consumers may have a greater cushion to fall back on to help smooth spending as the ongoing squeeze on their real incomes [from higher inflation] persists,” said Finn Mclaughlin at Capital Economics.

Business investment increased by 0.5pc in the three-month period, taking analysts by surprise, as capital expenditure was expected to be flat. Investment in late 2016 also performed better than was first realised.

Consumer spending growth came in at just 0.2pc in the second quarter, and was weaker in the latter part of 2016. Net trade was also 0.4 percentage points stronger, adding to suggestions that the economy may be a touch more balanced than initially suspected.

Howard Archer, chief economic adviser at the EY Item Club, said the breakdown of growth is “more encouraging”, but growth of 0.3pc indicates the economy is “stuck in low gear”.