Savings down as price rise outstrip wages

The amount households have left to save fell in the first three months of the year as price rises outstripped wage growth, official data has revealed.

The savings ratio - the money left after consumption - fell from 5.1% to 4.6% over the quarter to March, highlighting the impact inflation is having on households and their finances, the Office of National Statistics (ONS) said.

The ONS, which left its estimate for growth in the UK's economy in the first quarter unchanged at 0.5%, said household disposable income fell in real terms by 0.8% in the three months following a fall of 0.9% in the previous quarter.

The amount of money people spent went up by 1.4% in the quarter but, adjusting for the increase in prices, real expenditure fell by 0.6%.

The ONS said while the overall growth in the economy was unchanged, it revised up the contribution from construction but reduced industrial production, which saw its first fall since the third quarter of 2009.

Growth in the UK economy over the past four quarters was lowered to 1.6% from 1.8%.

Economists said the annual GDP revision was a disappointment while the household spending figures highlighted the pressure on family incomes.

Charles Davis, managing economist at Centre for Economic and Business Research, said the ONS data confirmed that real household spending was in technical recession after a fall of 2.7% on this time last year.

He added: "It is the continued squeeze on household incomes and consequent weakness in spending that means the Bank of England is likely to hold off from raising interest rates until the first quarter of 2012."

The official data showed spending on clothing and footwear declined by 7.7% year on year, with falls also in household goods and services and hotels and restaurants bearing out the recent gloomy news coming from high street firms.

Business investment figures for the quarter were revised upwards, but still showed a decline of 3.2%, against a 7.1% fall previously, while the balance of payments deficit was reduced to £9.4 billion from £13 billion as traded goods exports rose by £4.7 billion to £74.6 billion, the largest quarter on record.

Business groups said the Government must do more to help the private sector to maintain the export improvement.

British Chambers of Commerce chief economist David Kern said: "Britain's future growth depends on a strong rebalancing towards exports and investment. There are signs that this is happening, but the Government must reinforce these trends by empowering private sector firms to create jobs and growth."