Government statisticians have confirmed the British economy grew by 1.8 per cent during 2016 as the retail sector enjoyed a strong Christmas period – but the savings ratio fell to its lowest level on record.
Here are five things the nation’s beancounters have shown us about the UK economy this month.
Savings ratio: No nation of savers
Consumer spending remained healthy at the end of the year, with “buoyant contributions from the retail and wholesale sectors in the run up to Christmas,” according to Darren Morgan, Office for National Statistics (ONS) head of GDP.
Part of the reason we have been able to keep on spending despite steadily rising prices (and a big part of the reason the Bank of England has decided growth won’t actually slow that much) is the fall in the savings ratio.
Britons are digging deep into their pockets to fund spending as wage growth disappoints. This has driven the savings ratio – the amount saved from total resources – to its lowest level on record, at 3.3 per cent in the final quarter of 2016.
This trend has been going on since the third quarter of 2015, so it is no temporary dip, and certainly was not caused by the EU referendum vote.
GDP: A growth experience
GDP growth was actually revised down slightly in the third quarter of 2016, underlining the UK’s acceleration at the end of the year, but overall the latest figures confirm what we already knew.
Despite the boost to exports which are generally seen through the lens of manufacturers (more on which below) UK growth has been driven by the dominant services sector.
In the last quarter of 2016 services, which account for around four-fifths of the UK economy, accounted for 0.6 per cent of the 0.7 per cent quarterly growth.
Readers’ experience may vary though: the increase in the amount of wealth per head was more sluggish, with a 0.5 per cent GDP per capita rise. In the first quarter of 2016 GDP per capita did not grow at all.
Inflation: Price increases ballooning
The Brexit vote has had one big verifiable effect. After the EU referendum the value of sterling plunged, with the pound remaining around 17 per cent lower than its pre-referendum peak.
Inflation hit 2.3 per cent in February as a result, as the double hit of increased imports and oil prices came through.
The Bank of England will likely face significant pressure to tighten monetary policy by raising interest rates as inflation rises. It predicts inflation to peak at 2.75 per cent, leaving little leeway, but Gertjan Vlieghe, one of the rate-setting members of the Monetary Policy Committee (MPC), has said it could rise as far as 3.5 per cent before the Bank acts.
Rising inflation could weigh on consumer sentiment if real wage growth stagnates or even stops.
The ONS’s Morgan said: "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.”
Exporters: A sweet spot for some
But the fall in sterling has created winners too. Exporters have been boosted by the fall in the value of the pound, as British goods become cheaper for foreign buyers.
The Bank of England’s Ben Broadbent said the UK is currently enjoying “a sweet spot for exporters”, with low prices but no apparent hit to growth from the referendum.
The sterling sweet spot could even make up for falling business investment elsewhere as exporters scramble to meet increased demand, cushioning the blow to the economy even more.
Current account: Neither a borrower nor a lender be
The boost to exporters has helped combat one of the perennial problems for the UK economy: the current account deficit.
The UK’s current account deficit narrowed to its lowest since 2013 at the end of last year as the devaluation in sterling increased the value of foreign earnings.
The UK borrowed a net £12.1bn from the rest of the world in the last quarter of 2016 as the trade deficit narrowed sharply, the ONS said.
This meant the current account deficit represented 2.4 per cent of GDP, down from 5.3 per cent in the previous quarter.
The UK has not run a surplus with the rest of the world this side of the millennium, but if exports keep on rising it could even help rebalance the British economy towards the kind of manufacturing industries that have been neglected in recent decades.