UK economy slides as growth revised down in spring and household incomes fall

The United Kingdom’s economic growth was lower than anticipated in the spring, preceding a significant decline in household living standards, according to the latest official statistics. The Office for National Statistics reported that gross domestic product expanded by 0.2 per cent in the three months to June, a downward revision from the previous estimate of 0.3 per cent growth. Growth in the third quarter remained sluggish at 0.1 per cent, with economic activity dampened by speculation over potential tax rises in the wake of Rachel Reeves’s budget announcement last month.

The final quarter of the previous year saw growth revised upwards to 0.3 per cent. However, analysts point out that any acceleration in economic momentum remains unlikely. Unemployment has increased and cumulative price rises over recent years continue to suppress consumer spending levels. A softening labour market, accompanied by slowing wage growth, is expected to keep households wary, following the substantial inflation seen in recent years. Market concerns around the autumn budget add to this subdued outlook; the slow recovery in car manufacturing after the Jaguar Land Rover cyber incident also played a part in the weak economic data.

The economy has demonstrated growth in just two of the last seven months, with an unexpected contraction of 0.1 per cent in October. Real household disposable income per person, a key indicator of living standards, declined sharply by 0.8 per cent in the three months ending September. This follows a notable 0.9 per cent fall in the first quarter and stagnation in the second. The latest figures confirm that living standards have not improved during the second year of the Labour government and, in fact, have declined.

Separate analysis by supermarket chain Asda and the Centre for Economics and Business Research highlights the acute strain on the poorest households, who on average lack the income each week to afford basic necessities. After taxes and fixed household costs, there remains a shortfall of £72 per week, though this is sometimes mitigated by government benefit payments.

The proportion of income saved by households, known as the savings ratio, dropped by 0.7 percentage points to 9.5 per cent in the third quarter, from 10.2 per cent in the preceding three months. This fall has been attributed to the Bank of England cutting interest rates by 0.25 percentage points in August and again recently, reducing the rate to 3.75 per cent from 4 per cent.