Households will have more cash to splash this year after disposable income actually increased in the final quarter of last year despite the fact that the UK was in a recession, new figures show.
According to the Office for National Statistics (ONS), real household disposable income – the amount of money households have to spend after taking into account inflation – increased 0.7 per cent in the final quarter of the year, having been flat in the third quarter.
High wage growth and falling inflation has given households a boost over the past few months. Despite a rise in disposable income, household expenditure actually fell as people replenished their savings accounts and paid down debt.
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The household savings ratio increased to 10.2 per cent in the final quarter, up marginally from 10.1 per cent in the third quarter. This meant it rose ever further above the 6.3 per cent average during the 2010s.
“New figures on households show that savings remained high, with an increase in income in the last quarter of the year,” ONS director of economic statistics, Liz McKeown commented.
Simon French, head of research at Panmure Gordon, pointed out on X that it was “unusual” for the savings rate to be so high without a “spike in unemployment”.
The latest figures on household incomes came alongside final confirmation that the UK fell into a shallow recession last year. The cumulative decline in the second half of the year was 0.4 per cent.
Most economists think that the UK has already moved out of last year’s recession, with household spending likely to stimulate stronger growth in 2024.
“That rise in real disposable income bodes well for a recovery in spending in 2024,” Rob Wood, chief UK economist at Pantheon Macroeconomics said.
Ashley Webb, assistant economist at Capital Economics, argued that household disposable income would continue rising thanks to “lower inflation and the boost from further cuts to national insurance tax announced in the March Budget from April.”