Household saving rates hit record lows as consumers try to keep up spending
Household saving rates have hit record lows as consumers tried to keep up spending in the face of rising inflation.
The Office for National Statistics (ONS) said the saving ratio for households dropped from 5.3% to 3.3% of total disposable income in the fourth quarter.
The rate, which includes non-profit institutions serving households (NPISH) and includes the likes of labour unions and charities, was at its lowest level since records began in 1963.
That figure measures the amount being put away for saving as a proportion of disposable income.
It came amid a 0.7% rise in household spending in the fourth quarter, helping fuel a 0.7% rise in gross domestic product (GDP) growth over the same period.
Consumers have managed to keep up spending despite a 0.4% drop in real disposable incomes, which have been knocked by rising inflation following the post-Brexit vote collapse of the pound.
It has left households with less cash for saving.
ONS head of GDP Darren Morgan said: "Although household spending rose at the end of last year, there was a noticeable worsening in people's perception of the general economic situation and their own financial position."
While Mr Morgan said that the drop in the saving ratio was partly due to factors like the holding of pension funds rather than any "significant changes" in real incomes, experts say it signals more challenging times ahead.
John Hawksworth, chief economist at PwC, said: "In short, the UK consumer increasingly appears to be living beyond their means and this cannot continue forever as inflation rises further above target over the course of this year, squeezing real earnings.
"This reinforces our view that we will see a gradual slowdown in the UK economy this year as consumers pull in their horns, despite some offset from stronger net exports."
Inflation surged to 2.3% in February, as sterling's post-Brexit vote collapse made everyday items more expensive.
Amid the slew of economic data from the ONS was data showing that output from Britain's powerhouse services sector fell by 0.1% in January, following a rise of 0.2% in December.
Economists had been expecting another 0.2% rise.
Cinemas were among the areas seeing the biggest declines, slumping by 8.3% after UK moviegoers stayed at home after watching major blockbusters over the Christmas period.
It contributed to an overall 1.2% fall in transport, storage and communication activity, while distribution, hotel and restaurant services output fell 0.7%.
The ONS also released data outlining Britain's current account deficit, which measures the amount of money flowing in and out of the economy.
The deficit more than halved from £25.7 billion to £12.1 billion in the fourth quarter, thanks in part to a rise in the export of goods to £7.6 billion, which included £1.6 billion worth of oil exports and £1 billion in machinery.
The trade surplus in services also widened by £2.4 billion to £26.8 billion.
Sterling's collapse was widely expected to boost exports, as it makes UK goods less expensive abroad.
Annual GDP growth between 2015 and 2016 was confirmed at 1.8%.