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The UK economic system grew extra slowly than estimated within the second quarter because the households financial savings charge climbed to the very best since 2021, underlining the problem dealing with Sir Keir Starmer’s authorities.
UK gross home product grew 0.5 per cent within the three months to June, the Workplace for Nationwide Statistics mentioned on Monday, down from its first estimate of 0.6 per cent and slower than the 0.7 per cent enlargement within the first quarter.
The second quarter was marked by a leap within the family saving ratio — the proportion of disposable earnings that households save — to 10 per cent, up from 8.9 per cent within the first three months of the 12 months and the very best for the reason that second quarter of 2021.
The rise means that warning from households held again shopper spending, which rose 0.2 per cent within the quarter. Households’ actual disposable earnings grew by 1.3 per cent within the interval, down from 1.6 per cent within the earlier three months, ONS information confirmed.
Economists mentioned the revisions confirmed progress had slowed within the second quarter from a sooner tempo at first of the 12 months, when the economic system rebounded from a technical recession in 2023. Separate figures printed earlier this 12 months confirmed the economic system didn’t develop in each June and July.
Starmer has pledged to kick-start the economic system, focusing on long-term progress of two.5 per cent, and enhance residing requirements. Nevertheless, the federal government has warned that tough selections will likely be required to repair what it has characterised as a £22bn black gap within the public funds. Chancellor Rachel Reeves will ship her first funds on October 30.
The revisions from the ONS come after the Financial institution of England this month held rates of interest at 5 per cent however signalled it might reduce borrowing prices once more as quickly as November.
“The recent rebound in activity from the mild recession has been a bit softer,” mentioned Paul Dales, economist on the consultancy Capital Economics.
In keeping with the ONS revisions, the UK economic system expanded 0.3 per cent final 12 months, up from an preliminary estimate of 0.1 per cent. The change, together with earlier revisions to 2022 information, means the economic system was 2.9 per cent bigger on the finish of the second quarter than it was within the closing three months of 2019, earlier than the coronavirus pandemic.
For 2022, the ONS revised the family financial savings ratio down, which helped drive stronger financial progress within the interval, however the charge is up from the low it hit throughout that 12 months.
The revisions confirmed that family consumption volumes within the second quarter had been 1 per cent larger than pre-pandemic ranges, in contrast with an preliminary estimate that they had been 1.5 per cent decrease.
“This changes the economic story post-Covid slightly, with consumers funding the growth rebound in 2022 by dipping into their savings accumulated during Covid more than previously thought,” mentioned Rob Wooden, economist on the consultancy Pantheon Macroeconomics.
Within the second quarter, the financial savings ratio climbed as households solely spent a part of their improve in disposable incomes. Economists mentioned that progress may but obtain a lift if households dip into their financial savings in coming months, some extent made by BoE charge setter Megan Green final week.
“While the prospect of higher taxes in the Budget on October 30 are one downside risk to consumer spending, a fall in the saving rate is an upside,” mentioned Dales.
Jeremy Hunt, shadow chancellor, insisted the revised figures nonetheless confirmed that the economic system bequeathed to the Labour authorities was stronger than Starmer claimed.
“Today’s figures once again discredit Labour’s fabricated narrative on the economy,” mentioned Hunt, who’s attending the Tory convention in Birmingham. “With the Budget only one month away, she must not use it to further damage business confidence with higher regulation and higher taxes.”
