Household savings ratio falls to lowest level in four decades

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The Independent Online

Efforts by the Government to encourage people to save more have fallen on deaf ears, according to figures showing the savings ratio has tumbled to its lowest level for almost four decades.

Efforts by the Government to encourage people to save more have fallen on deaf ears, according to figures showing the savings ratio has tumbled to its lowest level for almost four decades.

The proportion of household income put aside for a rainy day fell to 3.0 per cent in the second quarter of the year, the lowest since 1963. It equalled the figure for 1988 - the peak of the Eighties boom.

The figure, published by the Office for National Statistics as part of its final estimate of GDP growth, has more than halved over the 12 months. The ONS left the estimate for economic growth unrevised at 0.9 per cent. Figures for household spending and growth in the manufacturing and services sector was also left unchanged.

Economists said the figures would not alter the outcome of next week's meeting of the Bank of England's Monetary Policy Committee, which is expected to leave interest rates on hold for the eighth month in a row.

The ONS said money set aside by households as a nest-egg dived, from £7bn in the first quarter to £4.7bn, the lowest for 10 years. Economists were divided over whether this was a sign of increasing consumer spending, which might worry the MPC, or was because of falling incomes. Consumer spending rose at 0.8 per cent over the quarter, unrevised from the previous estimate, but up from 0.6 per cent in the first quarter.

Ian Stewart, UK economist at Merrill Lynch, said: "The domestic economy is showing fairly robust growth and there is still a case for further tightening."

There was also concern that Government spending, which rose by 2.1 per cent compared with a fall in the previous quarter, was set to accelerate. "The full force of the Chancellor's spending plans is now beginning to be felt," said Richard Iley, at ABN-Amro.

Others pointed to a fall in household disposable income thanks to rising interest payments on the back of higher mortgage costs and zero growth in wages and salaries.

Adam Law, at Barclays Capital, said it was misguided to compare the savings ratio with 1988. "If it was based on a splurge in consumption it might worry the MPC because of implications for inflation," he said. "But the fact is that it was due to lower incomes."

The ONS figures also showed households sold £12.94bn worth of shares during the six months to June - a record for a first half of the year.

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