UK household spending hit its highest level since before the financial crisis last year, according to the Office for National Statistics (ONS).
The latest official data shows that between April 2016 and March 2017 average weekly household spending was £554.20.
The ONS figures show that households increased their spending by 4 per cent in 2016-17, helped by low inflation and rising employment. However, household incomes only grew by 2.3 per cent in comparison over the same period, leading to lower savings and higher levels of household debt.
As a result, household spending increased more rapidly than income growth, with the biggest spending rises taking place among lower income households (those in the bottom half of the income distribution), the Resolution Foundation points out.
At the same time, UK households’ savings ratio dropped to just 7 per cent, which was the lowest level seen since 2006. This could partly be attributed to the Bank of England’s low base rate of 0.25 per cent, which jumped back up to 0.5 per cent in November 2017.
Stephen Clarke, policy analyst at the Resolution Foundation, says: ‘Today’s figures confirm that families largely shrugged off any immediate post-EU referendum jitters and went spending. This extra spending outpaced the extra level of income available to households, who turned instead to their savings and credit cards.’
But he cautions that more recently, rising prices and squeezed incomes have put the brakes on Britain’s big spending households.
PwC's UK consumer markets leader, Lisa Hooker, echoes this concern: ‘Looking ahead, the outlook for retailers remains tough, with muted consumer demand as real incomes are squeezed.’
Tom Selby, senior analyst at AJ Bell, comments: ‘While rising consumer spending might be good for the UK economy in the short-term, it risks storing up serious long-term problems – particularly if it is driven by cheap loans and rising consumer debt.
‘And it’s not just short-term saving that takes a back seat to spending today. The reason automatic enrolment was introduced was to reverse an alarming decline in retirement savings rates in the UK. Even as recently as 2016, defined contribution savers were, on average, putting away just 1 per cent of their salary – a reduction from the 1.5 per cent level seen in 2015.’
Economic growth may be underestimated
However, at the same time Britain’s economic productivity could be higher than previously thought because officials may have underestimated the size of the telecoms industry.
Richard Heys, the deputy chief economist of the ONS, recently said that there is a ‘disconnect between the technical performance and the economic measurement’ of industries such as telecommunications.
Money Observer has previously reported that UK growth may be underestimated as ONS statisticians find it a challenge to keep up with the drastic changes in the prices of goods and services brought about by technological innovation.
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