UK savings
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The UK savings rate declined to the lowest level since records began in 2017, while the pace of growth in disposable income has also fallen, according to the Office for National Statistics (ONS).

The ONS reported the UK savings rate fell to 4.9 per cent of income in 2017, the lowest level since records were first collected in 1963.

The ONS stated people have been spending more than they earn for the past five consecutive quarters to the end of 2017.

This is the first time since records began there has been a full year where the savings rate has declined in every quarter.

But Sir Steve Webb, former pensions minister and now director of policy at Royal London, said the data creates a misleading impression, as it includes withdrawals made under the pensions freedom legislation.

Individuals were not permitted to make those withdrawals prior to the pensions freedoms being introduced back in 2015.

This makes the change in the savings data look more extreme in recent years than would otherwise have been the case, according to Sir Steve.

Sir Steve also noted that reduced income for pension pots as a result of low interest rates have also made the data look worse than it is.

Fund manager Neil Woodford said he views the drop in the savings rate as a positive sign for the UK economy.

This is because conventional economic theory states that a fall in the savings rate means people are confident enough about their immediate economic prospects to spend.

If an individual is worried about their future, the instinctive reaction is to horde cash, pushing the savings rate upwards.

Mr Woodford said he views the fall in the savings rate as a positive sign for the UK domestic economy, and a justification of his view that the UK economy will perform better than expected.

However if the savings rate drops to an excessively low level, conventional economic theory states that the danger is a credit bubble builds in the economy, leading to a crash.

Source: FT Adviser

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