Savings raided as wage growth lags

Households continued to raid their savings pots at the end of last year as wage growth was outstripped by increases in the cost of living.

Figures revealing the number of people delving into their savings have caused concern
Figures revealing the number of people delving into their savings have caused concern

Figures from the Office for National Statistics (ONS) showed the country's savings ratio stood at 5.1% in 2013, compared with 7.3% in 2012.

And on a mixed day for the UK economy, it was confirmed that gross domestic product (GDP) rose by less than expected in 2013 - 1.7% rather than 1.8% - although the estimate for the fourth quarter of last year was left unchanged at 0.7%.

Business investment rose by 2.4% but hopes that the UK recovery is now on a more sustainable footing were hit when it emerged the current account deficit stood at a near-record of £22.4 billion in the fourth quarter of 2013.

The figure, which shows the UK's trade in goods and services as well as income and current transfers, was much higher than the City's £14 billion forecast and only slightly lower than the high seen three months ago.

Today's current account deficit equated to 5.4% of GDP during the quarter.

The weakness was not due to the trade deficit but a fall in income from UK assets overseas, compared with income from foreign-owned assets in the UK, in the wake of the recent strengthening in sterling.

The household savings ratio has been in decline since peaking at more than 8% in the first part of 2012.

Markit economist Chris Williamson said: "A fall in the savings ratio suggests current household consumption is too reliant on people delving into their savings and therefore unsustainable, unless of course incomes start to rise."

This is now showing signs of taking place after inflation fell to a four-year low of 1.7% in February and annual wage growth in the three months to January improved to 1.4%.

Capital Economics analyst Samuel Tombs said rising real incomes should provide stronger foundations for further growth in consumer spending this year.

He added: "The outlook for households' real incomes has improved over the last few months - inflation has eased significantly while nominal pay growth looks set to pick up."