LONDON: The British economy’s strong finish to 2016 looks likely to prove a high watermark as Brexit gets underway, according to a range of indicators on Friday which pointed to a growing squeeze on consumers.
Households ran down their savings to a record low as their spending power shrank sharply in the last three months of 2016, official data showed.
In another indication that the world’s fifth-biggest economy has lost some of its resilience to last June’s shock vote to quit the European Union, the dominant services industry contracted in January for the first time since March last year.
Separately on Friday, a survey showed consumers were worried about the outlook for the economy. And there was a surprise fall in house prices.
Britain’s economy last year defied forecasts that it would slow sharply after the referendum decision to leave the EU.
The Office for National Statistics confirmed gross domestic product grew by a quarterly 0.7 per cent in the October-December period, as expected in a Reuters poll of economists.
Growth for 2016 as a whole was 1.8 per cent, the strongest among all Group of Seven rich nations bar Germany.
But a quick rise in inflation, caused in part by the fall in the value of the pound since the Brexit vote, is expected to crimp spending by consumers, the main drivers of the economy, just as Prime Minister Theresa May begins Britain’s EU divorce.
Real household disposable income — a measure of spending power — shrank by 0.4 per cent in the last three months of 2016, the steepest quarter-on-quarter drop in nearly three years.
And while consumer spending remained strong, the savings ratio sank to 3.3 per cent, its lowest level since records began in 1963.
The ONS said the fall in the savings ratio in part reflected changes in pension fund holdings rather than a big shift in the real incomes of households. But economists said the figures were reason for caution.
“For consumption to continue to grow at current levels, the UK needs the savings rate to drop further. Yet today’s data show there is not much further to fall,” HSBC economist Elizabeth Martins said in a note to clients. — Reuters
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