Savings hit a record low in the UK
The UK’s savings rate reached a record low last year, according to a recent study published by the Office of National Statistics. The reports come hand-in-hand with the increased prices and ‘stagnant income’ seen throughout 2017.
Factors including slow employment growth, increased spending levels, high borrowing and a volatile economy also indicated a tighter hold on household finances.
Historic low in UK savings
Individuals saved just 4.9% of their earnings, even further down from the historic record low of 5.1% that was last reported in 1971. The Society for Motor Manufacturers and Traders also reported that domestic demand for cars was down 17% from the previous year.
From additional borrowing – an extra £1.6bn in consumer credit was reported in February alone – to increased spending, British households have become net debtors for the first time since 1987, when records began.
However, household spending power increased by £1.87 in February 2018, according to an index of family finances conducted by supermarket giant ASDA, in the first sign of growth since July 2017 – sparking hopes of a gradual improvement.
Wage growth picking up tentatively
The opening months of 2018 have shown signs of a slow but sure wage growth. The economy grew by 1.8% last year, up on 1.7% from the previous year, and is already up 0.2% month on month.
"Growth in 2018 should be helped by the squeeze on consumers easing as the year progresses," said Howard Archer, Chief Economic Advisor to EY.
‘However, consumers may well face slower employment growth in 2018 than in 2017. Consumers are also likely to face higher interest rates as we expect the Bank of England to tighten monetary policy twice this year with 25 basis point increases in May and November.’
Inflation has eased in 2018, too, and factors including a reduced account deficit – fuelled by rising overseas investment income last year – point to a recovering overall income. Income generated by services increased to £107bn as exports far outpaced imports, fuelled by a weaker pound.
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