Could household savings lead to a boost for the economy this summer?
Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, recently discussed the implications of the latest UK economic data.
The most recent statistics showed that GDP has slipped by a revised 1.6% (QOQ) in 2021Q1 and was still 8.8% lower than pre-pandemic 2019Q4. Also, in 2021Q1 services output fell 2.1% and production decreased by 0.5%, but construction output increased 2.3%.
Concerning the expenditure components of GDP, household consumption and gross fixed capital formation both fell back in 2021Q1, but government consumption increased. Export and imports (goods and services) both decreased but imports fell more than exports and the trade balance improved.
Households’ saving ratio increased to 19.9% in 2021Q1, the second highest on record, compared with 16.1% in 2020Q4.
UK consumers borrowed more than they paid off in May for the first time since August 2020, with net borrowing of £0.3bn.
Over the same time periof, net mortgage borrowing rebounded to £6.6bn in the month, following £3.0bn in April, but below March’s record £11.4bn. Approvals for house purchases increased slightly in May to 87,500, from 86,900 in April. Even though they have fallen from a recent peak of 103,200 in November, they remain above pre-February 2020 levels. The household sector’s money holdings increased by over £210bn between February 2020 and May 2021. According to the Nationwide, the annual increase in house prices rose to 13.4% in June, bolstered by base effects.
Ruth Lea said: “One of the more interesting statistics from last week’s releases related to the significant increase in households’ saving ratio. This suggests there is scope for another major boost to economy, as restrictions are lifted further. Moreover, the fact that net consumer credit turned positive in May, the first time since August 2020, suggests confidence is returning to the household sector.”