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New drop in household savings ratio

31/3/14

By Verena Vogt

New figures from the Office for National Statistics (ONS) show that the household savings ratio continued to drop last year.

As the rate of inflation grew faster than wages, the ratio fell to 5.1% in 2013, compared with 7.3% the year before and more than eight per cent in 2008.

Markit economist Chris Williamson said: "A fall in the savings ratio suggests current household consumption is too reliant on people delving into their savings and therefore unsustainable, unless of course incomes start to rise."

The ONS figures suggest that this is now the case as inflation dropped to a record low of 1.7% last month and annual wage growth rose to 1.4% in the quarter to January.

Outlook for households' incomes has improved

According to Capital Economics analyst Samuel Tombs, a rise in real incomes could provide stronger foundations for a further increase in consumer spending this year.

He added: "The outlook for households' real incomes has improved over the last few months - inflation has eased significantly while nominal pay growth looks set to pick up."

The ONS also found that gross domestic product (GDP) only increased to 1.7% rather than the expected 1.8 per cent in 2013.

However, the estimate for the fourth quarter of 2013 remained unchanged at 0.7%.

Current account deficit rose to £22.4 billion in 2013

While there was a 2.4% rise in business investment, the current account deficit - which shows the UK's trade in goods and services as well as income and current transfers - rose to a near-record of £22.4 billion in the fourth quarter of last year.

The figure, which is equivalent to 5.4% of GDP during the quarter, was significantly higher than the forecast of £14 billion and only slightly lower than the figure recorded three months earlier.

The ONS said the higher-than-expected deficit was mainly due to a drop in income from UK assets overseas.

That's compared with income from foreign-owned assets in the UK, following the recent strengthening in sterling.


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