Economy to restore growth of savings

Norma Cohen

British economy seems to go slow recovery, according to recent figures, although the willingness and ability of households to spend freely to appear dim. National Statistics Office (ONS) on Tuesday confirmed expectations that the economy has contracted less in the second quarter than previous reports pointed. The last study of the Confederation of British Industry (CBI) found signs that stability returns to British business.
GDP fell 0.6 percent in the second quarter, which is less than the previously announced 0.7 percent. In explaining the corrected report to the ONS noted that the construction sector has shrunk less than previously announced – to 0.8 percent instead of 2.2 percent. „This gives a better path for the return of positive growth during the third quarter,“ explained Allan Monks of JPMorgan.
It turned out however that in the first quarter contraction was deeper than originally announced – 2.5 percent instead of 2.4 percent. Overall, British manufacturing as part of GDP is now 5.5 percent below the rate for the second quarter of 2008
Recent data suggest that households are determined to rectify their finances. Household savings have risen to 5.6 percent – the highest level in over 5 years and the financial balance of households, which includes investment in dwellings is positive for the first time since 2001
Household savings rate was very low, only about 1.7 percent of disposable income in 2008 The fact that the financial accounts of households are now positive, says Monks, is a sign that the cost savings and return to levels that can to maintain.
Colin Ellis of Daiwa Securities added: „It is quite logical given the fact that households were limited.“ Indeed, the economic survey of the CBI showed that retailers have made sales below average are 22 percent more ads than its sales for this period of the year. But the number of retailers reported that sales were higher prior year, also increased.
Economists from the Bank of England is worried that a general desire to rectify their finances households will use the income to pay their debts and increase savings rather than spend them. This will reduce demand for goods and services, which would outweigh the prices and production.
Final consumption expenditure of households fell by 0.6 percent in the second quarter – less than the decrease of 1.5 percent in the first, but overall costs are now 3.6 percent below the prior year.
One good aspect of the revised GDP data is the increase in disposable income at the rate of decline to 0.9 percent from 1 percent in the first quarter. But as if almost all growth has gone to savings rather than consumption, Ellis explained.
The data contain some disturbing elements. Example, gross fixed capital investment, most of which are implemented by companies in the private sector fell by over 5%. While this decline is smaller than the first quarter, most of the improvement is due to higher government spending, since capital projects have been launched. Separate ONS said the UK had registered a current account deficit amounted to £ 11,4 billion in the second quarter, equivalent to 3.3 percent of GDP. This compares with a revised deficit of £ 4,1 billion, or 1.2 percent of GDP in the first quarter.