Household savings ratio hits 12-year low as consumers raid nest-eggs

Consumers have been raiding their savings nest-eggs to fund their spending to the greatest extent for almost four decades, official figures showed yesterday.

Consumers have been raiding their savings nest-eggs to fund their spending to the greatest extent for almost four decades, official figures showed yesterday.

The final estimate of economic growth in the third quarter of the year showed that households are only saving 3 per cent of their disposable income.

The last time the savings ratio was lower than this was in 1963 when it was 2.6 per cent; and it was back in the third quarter of 1988, when the UK's overheating economy was close to its peak, that it was last at the current level.

Household income rose much more slowly than expected - by 0.4 per cent - while there were strong increases in contributions to pension funds and income tax payments. National Statistics, the government department that compiles the figures, said the introduction of tax self-assessment had also boosted tax revenues.

Economists said that with income growth slowing, share prices falling and consumer confidence weakening, it was unlikely the low savings ratio could be sustained. Jonathan Loynes, chief UK economist at Capital Economics, said: "If recent talk of a global economic slowdown hits sentiment, spending growth could slow very sharply as households seek to rebuild savings." David Hillier, at Barclays Capital, added: "A few weeks ago, most analysts would have said this reflected robust economy growth and excessive spending. Don't expect anyone to say that now."

But others said that it indicated consumers showed no signs of cutting their spending plans - something the Bank of England believes is vital if interest rates are to decline.

The quarterly GDP figures offered other evidence of a slowdown in parts of the economy. Business investment fell 0.5 per cent over the quarter, compared with a previous estimate of zero growth. The overall figure for growth was unchanged at 0.7 per cent, while the annual figure was revised to 3.0 per cent from 2.9 per cent. Both the services and manufacturing sectors were revised up by 0.2 percentage points to 0.9 and 0.8 per cent respectively. This was offset by a "substantial" fall in construction output where growth of 0.4 per cent was transformed into a 1.4 per cent decline by the revisions.