U.K. Consumers Added to Savings Before Lockdown Eased

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British households saved a fifth of their disposable income in the first quarter as the U.K. returned to lockdown, adding to a cash pile that is now powering a consumer boom.

The saving ratio rose to 19.9%, reflecting the limited opportunities to spend during a period when shops, bars and restaurants were closed in an effort to fight a fresh wave of coronavirus infections. The economy as a whole shrank 1.6%, slightly more than the 1.5% contraction previously reported, the Office for National Statistics said Wednesday.

A rapid recovery is now under way as Prime Minister Boris Johnson prepares to lift remaining curbs on national life on July 19. More recent data have shown that retail sales surged more than 8% in the three months through May as lockdown rules loosened and consumers started splurging some of the 230 billion pounds ($318 billion) built up during the pandemic.

With the economy firing on all cylinders and inflation accelerating, speculation is mounting about when the Bank of England could begin unwinding the emergency stimulus deployed to help Britain though its deepest slump in three centuries. At their latest policy meeting, officials indicated they are no hurry, saying the recovery needs to be cemented.

The saving ratio rose from 16.1% in the final three months of 2020. The average in the two years before the pandemic struck was less than 7%.

How quickly output recovers depends on the willingness of households to run down their deposits and return to normal rates of saving. A risk is that rising infections driven by the delta variant of Covid-19 prompts consumers to hold higher-than-expected levels of precautionary savings.

Separate figures showed the current-account deficit, the gap between money coming into the U.K. and money leaving, more than halved 12.8 billion pounds in the first quarter, equal to 2.4% of GDP.

The improvement was due to a significantly smaller trade deficit as imports fell sharply after the U.K. completed its withdrawal from the European Union on Dec. 31. A Brexit hit to exports and an imports-fueled rebound from the pandemic are expected to see the deficit widen sharply this year, potentially putting pressure on the pound.

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