Small fall in savings unlikely to continue

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SAVINGS took 0.5 per cent less of people's incomes in the second quarter, but a decline in real disposable incomes suggests consumers are unlikely to reduce their savings much further, dampening recovery prospects, write Peter Torday and Mary Fagan.

Official figures yesterday coincided with further evidence of the recessionary toll on the economy when Dun & Bradstreet reported that more than 46,000 businesses failed in Britain in the first nine months of the year compared with 33,500 in the same period last year.

The information company said it was now likely that 65,000 companies will have gone out of business by the year-end compared with 47,777 in 1991.

The Central Statistical Office said yesterday that the savings ratio - the ratio of savings to total personal disposable income - dropped to 10.3 per cent from 11 per cent in the second quarter.

The first-quarter rate was the highest since the second quarter of 1985. But, despite the slight decline in the second three months, consumers still feel obliged to save to reduce debts or against the threat of unemployment.

Hopes that a further fall in savings might lie in store were undermined by a small fall in real personal disposable income. Based on 1985 prices, this fell 0.3 per cent in the second quarter.

CSO figures also showed that the financial deficit of industrial and commercial companies more than halved in the second quarter to pounds 1.96bn. The reduction in the deficit reflected a rise in gross trading profits and lower taxes.

The figures also suggest that companies ceased to destock in the second quarter for the first time since the third quarter of 1989. However, the figures are subject to adjustment.

The Dun & Bradstreet report said that each week more than 1,220 companies were collapsing.

There has been a particularly sharp rise in the failures of smaller companies, hit by the chain reaction of cutbacks in larger firms.