Hopes for consumer-led recovery fade as ONS downgrades savings figures

Hopes for consumer-led recovery fade as ONS downgrades savings figures

The UK economy may be on a more precarious footing than previously understood after a major revision to official data cast doubt on the scale of household savings.

Analysts are now warning that hopes for a consumer-spending boom, fuelled by a “massive wodge of cash” saved during the pandemic, are likely misplaced.

The Office for National Statistics (ONS) recently slashed its estimate for the household savings ratio in the final quarter of 2022 by 4.1 percentage points to just over 5%. This near-halving represents one of the largest such downgrades in the last three decades and was accompanied by deep cuts to estimates for 2022 through to 2024.

The revision suggests the economy was weaker than thought, expanding by only 0.3% in 2023 despite consumers saving less than originally calculated. This undermines the long-held theory that sluggish growth would be reversed once households began to spend their pent-up savings, a prospect many had linked to the Bank of England cutting interest rates.



Economists now argue that when the impact of high inflation, which peaked at 11.1% three years ago, is considered, any savings buffer has been significantly eroded. “After taking account of the effects of inflation, the value of cash in households’ bank accounts doesn’t look high relative to the pre-pandemic trend,” noted Paul Dales, chief UK economist at Capital Economics. James Smith of ING added that inflation-adjusted Bank of England data has also “undershot the pre-pandemic trend”, casting further doubt on the existence of a large pot of unspent savings ready to boost growth.

This significant change in data also raises further questions about the reliability of ONS statistics. The agency has already faced intense criticism over the deteriorating quality of its labour market figures. Analysts suggest that plummeting response rates for key surveys, such as the “Living Costs and Food Survey”, may be contributing to the frequency and scale of these revisions.

While the latest ONS data for the second quarter of this year shows a historically high savings rate of 10.7%, experts at Pantheon Macroeconomics caution that they “expect further downward revisions”.

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