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Consumers tighten belts as GDP slumps

City A.M. Reporter
THE scale of Britons&rsquo; belt-tightening was laid bare by data showing record consumer credit repayments in August and a five-year high in households&rsquo; savings ratio in the second quarter.<br /><br />Official data confirmed Britain&rsquo;s economy suffered its worst 12 months since modern records began in 1955, with output falling by 5.5 per cent year-on-year in the second quarter. Faced with a growing risk of unemployment, households reduced debt levels and increased savings -- as well as finding it harder to access cheap loan deals. But economists focused on a more positive outlook ahead, with most expecting a hesitant return to GDP growth in the third quarter amid signs that the economy has passed its low-point.<br /><br />The CBI&rsquo;s September retail survey reported the first sales growth since April -- which analysts had viewed as a blip caused by the late timing of Easter -- while August mortgage lending was much better than expected and its highest since February.<br /><br />&ldquo;The September CBI survey lifts hopes that retail sales are holding up pretty well after losing momentum in August. This is important to overall growth prospects given that consumer spending accounts for some 65 per cent of GDP,&rdquo; said Howard Archer, economist at IHS Global Insight.<br /><br />The positive news from the CBI came despite data from the Bank of England which showed consumers repaid a record net &pound;309m of unsecured debt -- mostly credit card balances -- trumping the &pound;259m record set in July. This chimed with figures from the Office for National Statistics which showed the household savings rate rose to 5.6 per cent from 3.9 per cent in the first quarter.