British households' savings have fallen to a record low, according to the Office for National Statistics (ONS), sparking concerns of a consumer debt crisis following the Brexit vote. The saving ratio dropped to 3.3% in the fourth quarter of 2016, down from 5.3% in the third quarter, marking the lowest level since records began in 1963.
The decline suggests that people are increasingly dipping into their savings to maintain spending amid rising prices. Real household disposable income also fell by 0.4% compared with the previous three months, the steepest drop in nearly three years. Frances O'Grady, general secretary of the TUC, warned that the figures should 'set alarm bells ringing', noting that many households are relying on credit cards and loans to get by.
The Bank of England has identified rapid growth in consumer credit, particularly credit card borrowing, as a major threat to the UK banking system. Economists warn that the squeeze on living standards could hinder economic growth, which was confirmed at 0.7% for the fourth quarter and 1.8% for 2016 overall.
Martin Beck of the EY Item Club said the falls in savings and disposable income were 'worrying signs', especially as inflation is expected to rise further. Inflation reached 2.3% in February, driven by higher food and fuel prices, and is forecast to hit around 3% as the weaker pound feeds through to shop prices.
Rachael Griffin of Old Mutual Wealth described the figures as a 'wake-up call', urging households to build a cash buffer covering at least three months of essential spending. The ONS partly attributed the sharp drop in savings to technical factors, including pension fund investments shifting to lower-yielding bonds, but also noted a deterioration in people's economic perceptions.
