Households in red for first time in 30 years

Households have become net borrowers for the first time since the 1988 Nigel Lawson bubble. Analysis from the Office for National Statistics found households outspent their income by around £900 last year, totalling almost £25billion, far higher than the £300million of 30 years ago. In order to plug the gap between outgoings and earnings households have turned to borrowing and cut back on saving.

HOUSEHOLDS have been on a spending binge stretching themselves to levels not seen since the famous 1988 Lawson bubble.

Spending beyond their incomes has driven households to become net borrowers for first time in 30 years, according to analysis from the Office for National Statistics (ONS). Households outspent their income by around £900 last year, the ONS said. This overspend totalled close to £25bn, far higher than the £0.3bn seen in 1988.

In order to plug the gap between outgoings and earnings, households have turned to borrowing and cut back on saving activity.

This data echoed a period in the late Eighties, when a spending and borrowing boom was followed by a bust, after a sharp uptick in interest rates while Nigel Lawson was chancellor.

Andrew Wishart, of Capital Economics, said that it was “a bit ominous” that the last time households’ spending exceeded their incomes was in 1988.

However, the situation is not quite the same. Interest rates in the early Nineties following the Lawson boom were at close to 15pc, compared to the present Bank of England base rate of 0.5pc. Debts were therefore far more expensive to manage. Another distinction is that households found it more difficult to put money away for a rainy day in 2017.

The ONS said: “In the early Nineties, the average household had around £120 left over to save from every £1,000 of income (after taking out their spending and taxes). By 2017, this had fallen by two thirds to just £41, which is the lowest ever.”

In 2009, amid the financial crisis, households still managed to avoid spending more than their incomes.

Since then, as the economy has recovered, consumer spending has helped to bolster growth in the UK. According to Samuel Tombs, of Pantheon Macroeconomics, economic health was only at risk if borrowing more and saving less continued. Mr Tombs said: “A couple of years of low saving and high borrowing isn’t too worrying.”

The fresh analysis also suggested that the poorest households are the most likely to be overspending.