LONDON — A Brexit-fuelled economic slowdown is looking increasingly likely, with more data out Friday suggesting UK household finances are being squeezed to breaking point.
Brits are saving less than at any point in more than 50 years, due to inflation and falling real wages.
According to new figures released by the Office for National Statistics on Friday morning, just 1.7% of incomes were put aside for a rainy day in the first quarter of 2017, which is lower than at any point since comparable records began in 1963.
The previous record low was set in the fourth quarter of 2016, when Brits saved just 3.3% of their incomes. The amount being saved has been falling rapidly in the post-crisis years, dropping from more than 10% in 2010 to the current level.
The savings’ fall has accelerated since the vote to leave the EU, with inflation surging to its highest level in four years, and wage growth stuttering.
“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,” Darren Morgan, the ONS’ head of GDP, said in a statement.
Here’s the chart, courtesy of investment firm Hargreaves Lansdown:
As Tom McPhail, HL’s head of policy notes in a statement sent after the news emerged: “This data is likely to set alarm bells ringing; whether this is in fact evidence of a confident economy or peak complacency remains to be seen. The fall in the household savings ratio is undoubtedly in large part due to the squeeze on disposable income caused by a combination of flat average earnings and rising prices.”
This is worrying because, if the savings rate it falling because of rising prices and flat wage growth, it suggests Brits have little headroom to absorb further price rises. This could mean that Brits cut back on their spending. Consumer confidence figures out on Friday show shoppers are at their most pessimistic for 12-months.
Any spending slowdown would be disastrous for the economy, as it is consumer spending that has largely held up GDP growth since last year’s Brexit vote.
Joe Staton, Head of Market Dynamics at GfK, the market research firm that compiled Friday’s consumer confidence figures, said in a statement: “The twin pressures of higher prices and sluggish wage growth are squeezing household finances and adding to widespread fears of a Brexit-induced economic slowdown.”
Separate figures from the ONS also released on Friday confirmed the British economy growing at just 0.2% in the first quarter, making Britain the slowest growing of the G7 countries in the period.
“Growth was driven by business services and construction, partially offset by declines in some consumer-focused industries, such as retail sales and accommodation,” the ONS said.