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| Britons are suffering the biggest squeeze on their incomes in three decades. Photograph: itanistock / Alamy/Alam |
British households ramped up their savings to their highest in almost a year between April and June, official data showed on Tuesday, in a sign that a darkening economic outlook may be causing consumers to retrench.
The Office for National Statistics said the household savings ratio rose to 7.4% in the second quarter, up from 5.9% in the first three months of this year.
The increase came as households' real disposable income rose by 1.2% on the quarter - its fastest pace of growth in two years, and coming after a 1.7% drop in Q1. The official data follows a survey suggesting Britons are suffering the biggest squeeze on their incomes in three decades assoaring inflation and weak wage growth have piled pressure on household finances. The ONS data, published two weeks later than usual due to a major reworking of the national accounts data, indicated Britons are hanging on to their cash in anticipation of tough times ahead.
Britain's economy has been virtually stagnant for the last year and a darkening global outlook, along with harsh government spending cuts at home, have raised fears the economy could even start contracting again. Worries about deteriorating prospects for growth prompted the Bank of England to restart its quantitative easing programme this month with a £75bn cash injection aimed at shoring up the recovery. Bank policymaker Martin Weale said in an interview on Monday there was a chance the economy could contract in the final three months of this year.
Current account deficit narrows
Meanwhile ONS figures also showed Britain's current account deficit narrowed to its smallest in more than three years in the second quarter. The ONS said the current account deficit – the financial cost to the UK of importing more than it exports – fell to just over £2bn between April and June from £4.1bn in Q1, just a quarter of analysts' forecasts for a deficit of £9.3bn. That was equivalent to -0.5% of GDP, the smallest ratio since the third quarter of 1998. Between 1990 and 2008, Japan's balance of payments surplus, as a proportion of GDP, was 2.9% while the UK's was -1.9%.
The current improvement was driven by a rise in investment income from abroad, while the outflow of investment revenue fell slightly.
The high savings ratio could spell bad news for beleaguered retailers, many of whom have seen profits tumble and are bracing for another tough year in 2012 as consumer sentiment remains in the doldrums.
A survey on Monday showed Britons' debts rose for the seventh month running in October and they were less willing to make major purchases. Data last week showed retail sales rose 0.6% in September, but experts warned that was probably just a one-off, and credit ratings agency Fitch forecast that many smaller high street stores would probably leave the market or go bust.
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