U.K. Squeeze Hits Workers as Savings Rate Falls to Record Low

(Bloomberg) -- U.K. consumers’ savings rate fell to the lowest on record as they eat into more of their pay to cover shopping, rent and mortgages.

The measure -- the difference between income and expenditure -- slipped to 1.2 percent in July, UK Finance said on Friday. That’s the lowest since the banking group’s data started more than a decade ago and is also a huge shift from just two years ago, when the rate was at 5 percent.

The drop partly reflects the squeeze on households from a jump in inflation in 2016. With wage growth weak, workers were left with falling real incomes, meaning less to put aside each month. While the reduced savings rate helped to support consumer spending through the inflation surge, it can’t go on forever.

Also, if consumers’ worries about Brexit increase, they may start to ramp up savings again in preparation for any crisis. That would undermine demand in the economy, as Dan Hanson at Bloomberg Economics has highlighted.

Government documents published this week about the planning for a no-deal Brexit may play into any concerns among households. The government has asked pharmaceutical companies to stockpile drugs, Chancellor of the Exchequer Philip Hammond has warned of “large fiscal consequences” and Brexit Secretary Dominic Raab has had to downplay reports of food shortages.

--With assistance from Neil Callanan.

To contact the reporter on this story: Fergal O'Brien in Zurich at fobrien@bloomberg.net

To contact the editors responsible for this story: Craig Stirling at cstirling1@bloomberg.net, Zoe Schneeweiss, Brian Swint

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