WARNING signals about pressure on household finances are evident in the latest quarterly national accounts, which reveal the household saving ratio dropped to a record low in the fourth quarter as real disposable incomes slid.
The data raised further concerns over the ability of UK consumers, who have played a major part in recent growth, to continue raising their spending, as inflation surges amid sterling weakness in the wake of last June’s Brexit vote.
Yesterday’s data from the Office for National Statistics confirm UK gross domestic product grew by 0.7 per cent in the fourth quarter of last year, as consumer spending also increased by 0.7 per cent.
However, the figures show the UK household saving ratio fell to 3.3 per cent, the lowest since records began in 1963, from 5.3 per cent in the preceding three months.
Real household disposable income fell by 0.4 per cent quarter-on-quarter in the final three months of 2016.
Howard Archer, chief UK economist at IHS Markit, said: “We expect the fourth quarter of 2016 will turn out to be as good as it gets for the UK economy for some considerable time to come.
“Like a slow puncture, we suspect that the economy will gradually lose air as the year proceeds. Just how much the economy slows will likely depend on how much an improved export performance can compensate for slowing domestic demand.”
He added: “Consumers are now experiencing markedly diminishing purchasing power and this is likely to intensify as inflation rises appreciably further and earnings growth is limited.”
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