Household savings rate plunges to record low

New data from the ONS shows the UK’s household savings ratio has plunged to an all-time low of just 1.7%, beating the previous all-time low seen in the last quarter’s data.

The data shows that the household saving ratio fell from 3.3% in Q4 2016 to 1.7% in Q1 2017 - the lowest saving ratio on record. The decline has been partly attributed to an increase in taxes on income.

However the ONS says the household saving ratio has been declining since Q3 2015, adding that "the underlying trend is downwards, reflecting relatively strong consumption volumes, increasing consumer prices and subdued wage growth".

Tom McPhail, Head of policy at Hargreaves Lansdown, commented: “This data is likely to set alarm bells ringing; whether this is in fact evidence of a confident economy or peak complacency remains to be seen. The fall in the household savings ratio is undoubtedly in large part due to the squeeze on disposable income caused by a combination of flat average earnings and rising prices.

"Savings rates tend to fall when the economy prospers, and to rise in times of recession and uncertainty, as households cut back on consumption to build a rainy-day reserve. Monetary policy and the low returns available on cash may well be a factor here too.

"However we also know that only 3 in 10 of the working age population have savings of 3 months’ income or more and 12 million are not saving enough for retirement*. We need to develop a stronger culture of saving and investing; this is something to which the government needs to devote more attention.”