Britons Reduce Spending and Lift Savings in Virus Crunch

Britons responded to the coronavirus crisis by slashing spending and saving more as the economy slipped into what may be the deepest slump in at least a century.

Households saved more of their disposable income in the first quarter than at any time for three years, thanks in part to the closure of all but essential stores after the country went into lockdown on March 23. Nominal household spending plunged by 2.7%, the most on record, as consumers spent less on cars, eating out and clothes.

Saving Spike

U.K. consumers saved more as virus lockdown closed stores

Source: Office for National Statistics

With government wage subsides meaning that furloughed working are experiencing only a limited loss of income, the saving rate -- which reached 8.6% last quarter -- is expected to climb further. How quickly the economy bounces back will largely be determined by whether people feel confident enough to spend their spare cash as the lockdown restrictions ease.

The Office for National Statistics said Tuesday the economy shrank by 2.2%, slightly more than the 2% previously estimated, but the real damage inflicted by the pandemic came in the second quarter. Gross domestic product shrank by over 20% in April and jobless claims soared, leaving many Britons worried about the future.

The data come as Boris Johnson prepares to set out his plans to revive the economy. In a major policy speech, the prime minister will promise to “build, build, build” with 5 billion pounds ($6 billion) of accelerated investment in roads, schools and hospitals.

Separate figures showed the current account deficit widened to 21.1 billion pounds in the first quarter, the equivalent of 3.8% of GDP. Britain posted a small trade deficit compared with a surplus in the previous quarter, as both exports and imports fell amid disruptions caused by the pandemic. The deficit on investment income also widened, driven by a decline in the earnings U.K. investors get on their foreign holdings.

The fall in GDP in the first quarter was the largest since 1979. Consumer spending plunged 2.9%, the most in 41 years, government spending fell a record 4.1% and business investment declined 0.3%. On the output side, the dominant services industry fell 2.3% with health and education both posting large declines. Manufacturing and construction also shrank.

— With assistance by David Goodman

(Adds detail on spending, current acccount)