Falling household savings are underpinning the UK’s economic recovery and preventing it from sliding back into recession, according to new analysis published by the Trades Union Congress (TUC).
The study reveals how recent fragile signs of recovery have coincided with a 43 percent fall in family saving, which is now at its lowest level in four years.
The TUC analysis shows that between March 2012 and March 2013 the proportion of income that families put away dropped from £20.1 billion to £11.4 billion. Over this same period, consumer spending increased by 4.2 percent from £253.3 billion to £264 billion. This in turn helped the economy grow by 0.3 percent.
However, had saving rates remained the same during these five quarters, household spending would have been £9 billion lower and GDP £5.9 billion lower. This in turn would have seen the economy contract by 1.3 percent and slip back into recession, the analysis reveals.
The TUC says the findings highlight how fragile the UK’s recovery is and warned that relying upon families to raid their savings was not a sustainable option for ministers.
Instead of boasting about how the economy is on the mend, the Chancellor should be doing more to boost household incomes to secure long-term growth, says TUC General Secretary Frances O’Grady: “While any signs of growth are welcome, it looks like recent news has been driven by running down savings and the Government propping up the housing market.
“This is hardly a sustainable route to recovery, and looks too much like a repeat of trends that drove the crash. A sustainable recovery needs to be based on growth, investment and a recovery in living standards. That’s why Britain needs a pay rise.”