The UK savings ratio is at the lowest level ever, finds new data out today, but, at least falling savings helped propel the UK economy forward, at the end of last year.
The UK economy grew at 0.7 per cent in the final quarter of 2016 – the ONS had already told us this, but today, after taking into account a bit more information, decided that its previous estimate was right. It also gave us more data.
And if we drill down we find the devil – also known as the detail.
Consumer spending rose by 0.7 per cent – which helped, but household disposable income fell by 0.4 per cent.
So, let’s see, spending went up, despite disposable income falling; that must have meant less savings.
And indeed, the UK savings ratio fell to 3.3 per cent, the lowest since records began.
There was some good news, the current account deficit fell – from £25.7 billion to £12.1 billion – the lowest since Q2 2011.
The ONS did change its mind on the pace of growth in Q3 2016, revising this downwards from 0.5 to 0.4 per cent, pushing the annual growth rate down to 1.9 per cent.
Other data from the ONS revealed a somewhat worrying start to 2017. Output in the key services sector fell 0.1 per cent, while industrial production and construction output also dropped, by 0.5 per cent and 0.2 per cent, respectively.
Paul Hollingsworth, UK Economist, Capital Economics: "Looking ahead, the monthly fall in services output in January, and the latest survey evidence, suggests that the economy probably lost some momentum at the start of 2017 – we have pencilled in a quarterly outturn of 0.5 per cent. Clearly the key question over the coming quarters, though, is how households respond to the squeeze on their real incomes. This morning’s consumer confidence figures offer support to our view that fairly strong employment growth, upbeat sentiment and loose monetary conditions should ensure that spending growth moderates, rather than collapses."
Samuel Tombs, Chief UK Economist at Pantheon Macroeconomics was less positive about the falling current account deficit. He said: "while net trade made a massive 1.7 percentage points contribution to GDP growth, this largely reflected a surge in exports of non-monetary gold, which had an offsetting downward impact on inventories. Concrete evidence that sterling’s depreciation is resulting in a trade boost remains lacking for now, and huge uncertainty over the economy’s future trade arrangements suggests that the economy will rebalance only slowly towards exports this year.”