UK household saving rates hit record lows in 2016

UK household saving rates fell to record lows last year because people spent more, while earning less on pension investments.

According to figures published by the Office for National Statistics, the proportion of their income that households saved fell to 3.3 per cent in the fourth quarter of 2016, its lowest level since records began in 1963.

“While at a historic low, the fall in the saving ratio is partly due to changes in . . . the holdings of pension funds, rather than any significant changes in the real incomes of households,” said Darren Morgan, head of gross domestic product at the ONS.

Excluding the change in pension equity, the savings ratio fell to its lowest level since 2008 and was only slightly above zero. This is the preferred measure used by the Office for Budget Responsibility, the UK’s fiscal watchdog.

The ONS also published the latest figures for overall economic growth and for the UK’s services sector, which accounts for 80 per cent of the economy.

Services shrank by 0.1 per cent between December last year and January because output fell in consumer-facing industries such as restaurants and retailers. However, annual growth remained strong at 2.4 per cent.

The final estimate of economic growth in the fourth quarter of 2016 remained unchanged from the previous ONS estimate of 0.7 per cent.

“Although household spending rose at the end of last year, there was a noticeable worsening in people’s perception of the general economic situation and their own financial position,” said Mr Morgan.

The slowdown in the services sector was driven by a 0.7 per cent contraction in the subsector that includes hotels, restaurants and retailers.

“Although confidence has so far remained surprisingly resilient despite the rise in inflation, this is the first real sign from the official data that cracks are appearing in consumer spending,” said Allan Monks, an economist at JPMorgan.

The transport, storage and communication subsector also contracted, but this followed a very strong 2 per cent growth rate in December.

Business services and finance expanded by 0.5 per cent, against a fall of 0.1 per cent in the previous month. Government and other services expanded by 0.2 per cent, up from a rate of 0.1 per cent in December.