UK Households Suffer Longest Squeeze in 40 Years--Update
British households suffered the longest sustained decline in disposable income in over four decades in the nine months through March, new figures showed Friday, highlighting the scale of the squeeze on living standards following the Brexit vote.
The data is likely to intensify pressure on the ruling Conservative party, which earlier this month lost its parliamentary majority following a campaign in which the pressure on Britons' living standards was frequently an issue.
U.K. households' disposable income fell by 1.4% on the quarter in the first three months of 2017, the fastest pace of decline in four years, the Office for National Statistics said.
This was the third consecutive quarter of falling disposable income--the longest such period since the late 1970s.
The decline was driven by meager wage growth, rising prices and higher taxes, the ONS said. Tax payments climbed at the fastest quarterly pace since 1998, partly due to the timing of tax self-assessments filed by a growing number of self-employed taxpayers.
The pressure on Britons' household budgets meant that they further depleted their rainy-day funds to finance consumption. U.K. household saved only 1.7% on their income in the first quarter of the year, the lowest on record, data showed.
These developments seem to have hit economic sentiment, a survey showed earlier on Friday.
Data compiled by market researcher GfK U.K. Ltd for the European Union's executive showed British consumers' mood soured significantly in June, as they became increasingly concerned about the country's economy as well as their own financial situation, and grew uneasy about splashing out on big-ticket items. Sentiment was last more pessimistic in the immediate aftermath of the Brexit referendum.
As squeezed consumers pared back spending, the largely domestic-driven U.K. economy slowed sharply in the first quarter of the year, the ONS also confirmed on Friday.
The quarterly growth in the first three months of the year stood at 0.2%, the final reading showed, significantly below the 0.7% quarterly rate seen in the last quarter of 2016. On an annualized basis, growth stood at 0.9%.
"The detail of today's data might call into question the sustainability of even this rate of growth," said Scott Bowman, U.K. economist at Capital Economics, a London-based consultancy.
However, the fall in saving ratio reflected mainly the higher tax payments, driven partly by temporary factors, Mr. Bowman said, and the latest monthly trade data and surveys of export orders suggest that net trade will also start contributing positively to growth in coming quarters.
Spurred by the pound's steep depreciation after last year's June 23 Brexit referendum, annual inflation in the U.K. accelerated in May to 2.9%, the fastest rate since June 2013, and significantly exceeding the pace of growth in wages.
Shrinking real wages and disposable income and severely depleted savings means British households have resorted to debt to fuel their consumption, with unsecured borrowing growing at an annual rate of over 10% for several months now.
Concerned about the buildup of unsecured loans, the Bank of England this week ordered banks to begin rebuilding buffers of capital, which it had allowed them to run down to keep credit flowing after the Brexit vote.
The instruction to start rebuilding the capital buffers to pre-referendum levels came amid an intensifying debate among BOE policy makers over whether to begin gradually increasing borrowing costs.
Bank of England Gov. Mark Carney said this week that an interest-rate increase may be necessary in the U.K. if higher business investment and exports begin to offset slowing consumer spending.
Data Friday showed the U.K.'s current-account deficit widened in the first quarter, however, though business investment rose.
Write to Wiktor Szary at Wiktor.Szary@wsj.com and Jason Douglas at jason.douglas@wsj.com
(END) Dow Jones Newswires
June 30, 2017 07:48 ET (11:48 GMT)