British savings ratio falls to record low as weak UK GDP growth confirmed at 0.2 per cent in first quarter

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Savings have been falling steadily since mid-2015 (Source: Getty)

The UK savings ratio fell to its lowest level on record at the start of the year as government data confirm economic growth slowed.

The proportion of household resources saved fell from 3.3 per cent in the final quarter of 2016 to 1.7 per cent in the first quarter of this year, according to the Office for National Statistics (ONS).

The ONS warned savings data is notoriously volatile, and consumers spending savings can be a sign of confidence in the economy. Nevertheless, economists warned the fall in saving at a time of slow GDP growth is a warning sign for UK economic growth.

Read more: Five charts that show what we learned about the UK economy in June

Howard Archer, chief economic advisor to the EY ITEM Club, said: “This is not sustainable and fuels the belief that weakened consumer spending is likely to hold back the economy over the coming months.”

The fallings savings ratio likely allowed consumer spending to expand by 0.6 per cent in the quarter, but economists warned the prospects for consumers to run down their savings further to sustain spending may be limited.

“Little scope remains for households to reduce their saving rate further,” said Samuel Tombs, chief UK economist at Pantheon Macroeconomics.

ONS head of GDP Darren Morgan said: “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.”

The latest updates to output figures confirmed meagre economic growth of only 0.2 per cent in the first quarter, while GDP per head, which measures of how much wealthier each Briton is becoming, recorded no growth whatsoever.

Output growth in the services sector, which accounts for nearly 80 per cent of GDP, was revised down by 0.1 percentage points to only 0.2 per cent in the first quarter.

Read more: British consumer confidence takes a big inflation hit

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