Households have responded to the falling economy by saving more
UK gross domestic product (GDP) fell by 0.3% in the third quarter of 2022, greater than the first estimate fall of 0.2%, according to the Office for National Statistics (ONS).
The level of real GDP in Q3 2022 is now estimated to be 0.8% below where it was pre-coronavirus in Q4 2019, downwardly revised from the previous estimate of 0.4% below.
In terms of output, the services sector grew by 0.1%, but the production and construction sectors fell by 2.5% and 0.2% respectively from July to September. Output in all 13 manufacturing subsectors also fell.
The household saving ratio increased strongly to 9%, from 6.7% in the previous quarter; but real households’ disposable income fell by 0.5% in Q3 – its fourth consecutive quarter of negative growth.
“A further downward revision in GDP was no surprise, given the lack of confidence among consumers and businesses alike,” Samuel Mather-Holgate, financial advisor at Swindon-based firm Mather & Murray Financial, commented. “Such a strong increase in the household saving ratio shows the UK public have reacted to the negative economic news in a very pragmatic way.
“With the economy worsening and set to implode, it is only sensible that those still in employment are retaining more of their salaries as savings to create a safety net if they lose their job and to protect themselves against rising mortgage rates, rents, and household bills.
“I would hope this ratio continues to increase for several months before the worst of the recession hits, which will mean that it is eaten into for the very purpose it was being saved for, namely those who become unemployed or who are struggling to pay their bills.”
Also reacting to the ONS report on quarterly GDP, Wes Wilkes, chief executive at wealth managers IronMarket, remarked that the velocity with which output is falling is frightening.
“We are almost certainly already in recession,” he said. “High inflation, higher mortgage rates and rents, poor supply dynamics, a tight labour market, and geo-economic pressures have contributed to this and will take time to rectify. We may even see this third quarter number fall sharper still in the coming months.
“A surprising yet pleasing increase in the savings rate shows UK consumers have started to batten down the hatches. It looks like the UK consumer has a better handle on things than the Bank of England.”
