UK household spending at weakest since 2012

A woman pulls her shopping basket as she walks past a store displaying food and drinks goods in it's window, in Hounslow, west London on May 18, 2010.
A woman pulls her shopping basket as she walks past a store displaying food and drinks goods in it's window, in Hounslow, west London on May 18, 2010. PHOTO: AFP

Households see almost no growth in income even as GDP rise by 0.4% in Q3

LONDON • British households turned increasingly cautious in the three months to September as they raised their spending at the slowest annual pace since 2012, according to official data published yesterday.

In figures which underscore the headwinds facing the world's sixth-biggest economy as Brexit approaches, the Office for National Statistics confirmed that gross domestic product grew by 0.4 per cent on the quarter. That was in line with the median forecast in a Reuters poll of economists.

Annual growth was unexpectedly revised up to 1.7 per cent from 1.5 per cent, but the increase mostly reflected changes to data going back to the start of last year and it was the weakest increase since early 2013, the ONS said.

Households, under pressure from rising inflation and weak wage growth, saw almost no growth in their overall incomes, forcing them to dip into their savings.

Britain has grown more slowly than other big European economies this year as the rise in inflation, caused largely by the fall in the value of the pound after the 2016 referendum decision to leave the European Union.

"The figures confirm the pressure on households," Mr Philip Shaw, an economist with Investec, said.

An expected fall in inflation next year and forecasts for a long-awaited rise in wage growth should ease some of the squeeze.

"But we will have to wait to see what actually happens," Mr Shaw said. He noted that in contrast to the strain on consumers, British factories were growing strongly with manufacturing output up by 3.3 per cent in annual terms, helped by the recovering global economy and the weaker pound.

Manufacturing accounts for only about 10 per cent of Britain's economy, compared with 80 per cent from the services sector which grew by an annual 1.4 per cent, reflecting the weak domestic economy.

Yesterday's data showed household disposable incomes, adjusted for inflation, grew by 0.2 per cent, down from growth of 2.3 per cent in the second quarter although better than a fall in the first three months of the year. The household saving ratio fell to 5.2 per cent from 5.6 per cent in the second quarter but was higher than a low of 3.7 per cent in the January-March period.

Household spending rose by an annual 1 per cent, its weakest increase since early 2012.

The ONS said households were net borrowers - meaning their outlays were bigger than their incomes - for four successive quarters for the first time since records began in 1987.

In a sign of how the economy started the fourth quarter, the ONS said Britain's dominant services sector grew by a monthly 0.2 per cent in October after zero growth in September. Comparing the three months to October with the same period a year ago, growth was its weakest in four years at 1.3 per cent.

REUTERS

A version of this article appeared in the print edition of The Straits Times on December 23, 2017, with the headline 'UK household spending at weakest since 2012'. Print Edition | Subscribe