MNI INTERVIEW: UK Consumer Savings Still Drag on Economy- ONS

UK consumers continue to save in excess of pre-pandemic levels, with a continuing drag on spending in the service sector in particular, Office for National Statistics Chief Economist Grant Fitzner told MNI on Thursday.

“As we saw with the quarterly National Accounts published recently, households are keen to save a significantly higher amount than they were pre pandemic,” Fitzner said in an interview.

“There’s clearly still a significant amount of consumer caution out there, due to a range of factors which I've pointed to in the past, including volatility, economic uncertainty, a budget coming, and a gradual increase in the unemployment rate.” (See MNI INTERVIEW: UK Consumers On Edge Ahead of November Budget )

However the pile of savings underpinning many household balance sheets could help the UK economic recovery continue, he said.

“Although we do have a softening labour market, consumers are sitting on significant savings,” Fitzner said.

BOUNCEBACK

“So if at some point optimism picks up, you could see that that weakness in, for example, consumer-facing services start to unwind.”

Higher levels of consumer optimism have helped drive spending in the U.S., he noted.

"There's no reason to believe that at some point that won't happen [in the UK]. But as to when I just wouldn’t like to say,” Fitzner added. (See MNI INTERVIEW: Consumer Boost Lead For UK Growth- ONS Fitzner 

CORPORATE UNCERTAINTY

Companies are also reluctant to spend, he said.

“The global backdrop over the last couple of years has been quite volatile, and that uncertainty is also reflected in our latest business insight survey,” Fitzner said.

“Businesses continue to say that economic uncertainty is the biggest single factor weighing on their turnover.”

However, other measures in the survey have been better for the last couple of months, offering a balanced overall outlook “consistent with modest growth,” he noted.

“If you look at annual growth, the last three months compared with the same three months a year ago, it's been (in percentage terms) 1.6, 1.4, 1.3 and 1.5. So It's been around one and a half percent, with modest movements up and down around it, but that's been quite stable for the last couple of months.” 

On Thursday, the ONS reported growth in August of 0.1% m/m, or 0.3% 3m/3m, which comes in at growth of 1.5% compared to the three months to August 2024.

“Of course, who knows what the next couple of months will bring, but current growth rates are broadly in line with market growth expectations,” Fitzner said.