UK household savings 'slump to 48-year low' » Housing » 24dash.com

The proportion of money set aside by UK households last year slumped to its lowest level since 1959, official figures showed today.

The household savings ratio fell to just 2.9% last year, despite a slight pick-up to 3.3% in the fourth quarter from 2.6% as household disposable income growth out-stripped consumer spending.

Figures from the Office for National Statistics (ONS) also confirmed that while quarterly UK GDP stood at 0.6% in the final three months of the year, lower-than-expected third quarter growth pushed the overall rate for 2007 down to 3%.

The downward revision from the previous estimate of 3.1% is thought to be at odds with the Bank of England's expectations for a possible move up from 3%.

Analysts said the figures fuelled fears that UK growth will slow sharply from this year and may strengthen the case for an interest rate cut soon.

Howard Archer, chief economist at Global Insight, said: "We believe that the UK is set for an extended period of markedly below-trend economic growth, although we remain hopeful that it will avoid recession.

"Slowing growth maintains pressure on the Bank to cut interest rates further over the coming months, despite current significant inflation risks," he added.

The low annual household saving ratio also suggested consumers would be belt tightening over the year ahead as they start to put more money aside, according to Capital Economics expert Jonathan Loynes.

"It remains extremely low by historical standards, underlining the danger of a sharp slowdown in household spending growth in response to the downturn in the housing market," he said.

Household spending rose by 0.1% in the last quarter of 2007, down from 0.8% in the third quarter, as consumer goods spending fell from 1.7% to 0.3%.

A report by Lehman Brothers today warned that there was now a 35% chance of recession as the credit crunch continues to bite and said the Bank may be forced to follow the US with similar dramatic rate cuts.

Even initially encouraging news that the UK's current account deficit had more than halved in the fourth quarter was seen as a further sign of economic trouble brewing.

The deficit narrowed from £19.1 billion in the third quarter to £8.5 billion in the final three months of the year, which was far less than expected by economists and the lowest since the second quarter of 2005.

But the deficit drop was only seen as a result of a large losses made by foreign-owned banks in the UK amid the credit crunch.

"It's the worst way in which the current account deficit can improve," said Mr Loynes.

"It doesn't reflect an underlying improvement in the UK economy, but losses by financial institutions, which will also be reflected in losses of UK financial institutions and have an impact on employment in the sector and UK activity as well."