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UK consumers saved less money during the third quarter of the year as higher taxes squeezed disposable incomes.
The households’ saving ratio – which estimates the percentage of disposable income Britons save rather than spend – dropped 0.7 percentage points to 9.5%, the Office for National Statistics said. That is the lowest rate for more than a year.
Real household disposable income per capita dropped 0.8% as taxes on income and wealth grew.
Elliott Jordan-Doak, an economist at the consultancy Pantheon Macroeconomics, said the saving rate was still well above its average of 6.5% between 2015 and 2019.
“But pre-budget uncertainty likely led consumers to pull back on spending in the fourth quarter as fiscal worries dominated the headlines for months on end,” he said.
It comes just weeks after the chancellor, Rachel Reeves, announced the government will freeze personal tax thresholds for a further three years, a move that will raise billions of pounds for public finances but will drag more workers into higher tax bands.
The ONS confirmed on Monday that growth slowed to 0.1% in the third quarter, from 0.2% in the second quarter. The second quarter figure was revised down from a previous estimate of 0.3% growth.
Danni Hewson, of the broker AJ Bell, said the revision showed “just how difficult it is for the government to deliver on its pro-growth promises”.
“It’s clear there are huge challenges to overcome if the UK’s growth story is going to become more compelling,” she said.
“Persuading people to spend a bit more and encouraging businesses to dust off any expansion plans they’d set aside will require more than just a period free of destabilising speculation.
“It will require inspirational leadership and a commitment to delivering some of the growth-focused changes that are already in the mix.”
Business groups have blamed Reeves’s £25bn increase in employer national insurance contributions (NICs) – announced in her 2024 budget – alongside the extended period of uncertainty before this year’s budget for putting the brakes on the economy.
Last week, the Bank’s monetary policy committee voted to cut interest rates by a quarter point to 3.75%, the lowest level since early 2023.
The cut was widely expected after official data showed inflation fell last month to an annual rate of 3.2%, from 3.6% in October, helped by weaker food prices. That remained well above the Bank’s 2% target, set by the government, but suggested the Bank believed the worst of the inflation “hump” had passed.
Jordan-Doak said that consumer spending could be stronger going into the new year after the government abandoned plans to increase income tax.
“GDP growth should accelerate in the first quarter, with the budget now in the rear-view mirror,” he said. “That will boost the demand for labour and assuage households’ fears of a labour market slowdown.”
