Recent figures from the Office for National Statistics have shown that the UK’s household saving ratio fell to a record low at the end of 2016. The sharp decrease in savings was due to an increase in household spending, even as income declined.
The savings ratio, which estimates the amount of money households are able to save from their disposable income, fell from 5.3 percent in the third quarter of 2016 to 3.3 percent in the fourth quarter.
“Today’s figures should set alarm bells ringing. The last thing our economy needs right now is another consumer debt crisis. People raiding their piggy banks and borrowing more than they can afford is what helped drive the last financial crash.” said Frances O’Grady, the TUC general secretary.
The dip ratio is the lowest since records began in 1963. The ONS figures suggest that many households are spending money from their savings in order to maintain current spending.
According to Darren Morgan from the ONS, the dramatic shift in ratio is due to a series of technical factors.
“While at a historic low, the fall in the saving ratio is partly due to changes in imputed factors and the holdings of pension funds, rather than any significant changes in the real incomes of households,” he said.
Speaking on the fourth quarter estimate, Darren Morgan, from the ONS, said: “Growth in the final quarter remained unrevised at 0.7%, with buoyant contributions from the retail and wholesale sectors in the run-up to Christmas.
“Services dropped slightly in January with weak performances from hotels and the motor trade. However, the long-term picture is still one of robust growth.”
The Bank of England has predicted that the savings ratio will increase to 4.5 percent in 2017.
“Given that higher household borrowing was a key part of the [Bank of England’s] strong forecast for GDP growth, there must be a good chance that this will not be achieved, strengthening the case for a lengthy period of monetary policy inaction,” said Martin Beck, an economist from the EY ITEM Club.