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Published: Mon, July 03, 2017
Economy | By Melissa Porter

United Kingdom economic growth confirmed at 0.2% in first quarter

United Kingdom economic growth confirmed at 0.2% in first quarter

The ONS household savings ratio fell from 3.3% in the fourth quarter of 2016 to 1.7% in Q1 2017, having already started to decline in July 2015. Nevertheless, economists warned the fall in saving at a time of slow GDP growth is a warning sign for United Kingdom economic growth.

The ONS data shows that for the first time since the 1970s, disposable income has fallen for three quarters in a row.

The quarterly growth in the first three months of the year stood at 0.2%, the final reading showed, significantly below the 0.7% quarterly rate seen in the last quarter of 2016.

"The fall in the household savings ratio is undoubtedly in large part due to the squeeze on disposable income caused by a combination of flat average earnings and rising prices".

Growth in the business services and finance sectors helped to offset slower consumer spending, the ONS said. Alan Clarke, an economist with Scotiabank, said earlier on Friday that monthly growth of 0.2 percent for the services industry in April would be consistent with the BoE's forecast for overall economic growth to pick up in the second quarter to 0.4 percent. The recent fall is explained by the increased taxes on income and wealth.

'Some of the fall could be as a result of the timing of those payments, but the underlying trend is for a continued fall in the saving ratio'.

The figures also show that the United Kingdom economy grew 0.2 per cent in the first three months of 2017, unchanged from earlier predictions but down from the 0.7 per cent recorded in the last three months of 2016.

Taken together the data suggests households are choosing to ramp up credit card and overdraft borrowing and save less to fuel spending, rather than cutting back.

Frances O'Grady, general secretary of the TUC, was quoted by the BBC as saying: "These figures make for grim reading".

The ONS said the decline reflected "relatively strong consumption volumes, increasing consumer prices and subdued wage growth", as accelerating inflation hits households.

"Our economy's reliance on consumer spending, propped up by debt, is not sustainable and combined with an extreme Brexit the consequences could be severe".

According to information website Moneyfacts, savers have faced a "never-ending battle" to get a solid return on their cash in the last few years.

Nine out of 10 easy access savings accounts pay interest of less than 1%, and a third of such accounts failed to even pay a rate matching the current base rate of 0.25%.

"With inflation now rising much faster than wages, there are signs that consumer spending may not be so resilient in future".

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