Key facts
- Real household disposable income in the UK decreased by 0.8% in the first three months of the year.
- The decline was attributed to rising inflation (CPI) and increased capital gains tax receipts.
- This is the fourth quarterly fall in disposable income in the past five quarters.
- The UK economy expanded by 0.6% in the first quarter, with growth across services, production, and construction.
- The household saving ratio fell to 8.9% from 9.6% in the previous quarter.
UK households experienced a decline in disposable incomes during the first quarter of the year, primarily due to escalating price rises and changes in tax policies, according to the Office for National Statistics (ONS). Real household disposable income fell by 0.8% between January and March, marking the fourth decrease in the last five quarters. This trend occurred despite the economy growing by 0.6% in the same period, with positive contributions from the services, production, and construction sectors.
Investment manager Thomas Watts noted the balanced nature of the growth, with construction and production both posting gains, signalling a broadening economic momentum that would be reassuring to policymakers. The household saving ratio also saw a slight decrease, falling to 8.9% from 9.6% in the previous quarter, though it remains above pre-pandemic levels.
Economist Phil Shaw predicted that growth might slow significantly in the third quarter, but suggested that the existing household savings would provide a buffer against rising costs. He anticipates that the unwinding of energy price spikes will support economic activity later on. Shaw also indicated that the Bank of England is likely to maintain its current interest rate of 3.75% for the remainder of the year, given the robust economic figures and the absence of significant growth prospects in the near term, while anticipating rate cuts in 2027.