Britons Saved on Record Scale During Coronavirus Lockdown

(Bloomberg) -- Britons saved almost a third of their income during the lockdown as the coronavirus pandemic shuttered stores and sent the economy into its deepest slump for centuries.

The saving ratio soared to an unprecedented 29.1% in the second quarter, the Office for National Statistics said Wednesday. The figures confirmed Britain as the worst-performing major advanced economy during the quarter, with gross domestic product shrinking 19.8%, slightly less than previously estimated.

Government wage subsidies for furloughed workers meant that many British households experienced only a limited loss of income, but the opportunities to spend were vastly reduced. Non-essential shops were closed for much of the quarter, and the leisure and hospitality sectors only began to reopen in July.

While signs are that cash involuntarily built up during the lockdown helped drive a strong recovery in the third quarter, how quickly the economy continues to grow will depend on whether consumers maintain their spending or insist on holding precautionary savings in response to mounting risks to the outlook.

Unemployment is set to soar as wage support is scaled back, curbs are being re-imposed amid a resurgence of coronavirus cases, and the risk of a disruptive Brexit is growing, with Britain and the European Union at loggerheads in talks over a new trade deal.

Household consumption plunged by 80.5 billion pounds ($103 billion), an unprecedented decline of 24.2% over the quarter. The collapse was driven by dramatically reduced spending on restaurants and hotels, air travel, public transport, vehicles and recreation and cultural services.

Income meanwhile fell just 3.3%, and was down by 2.3% when adjusted for inflation. The amount saved rose to almost 104 billion pounds, triple that in the previous quarter.

The fall in GDP last quarter was revised modestly from a previously estimated 20.4%. Output and spending fell across the board. It followed a 2.5% decline in the first quarter, leaving the economy around 22% smaller than it was at the end of 2019.

More than half of that loss is expected to be recovered in the third quarter, but making up the rest may prove to be a slog. GDP will still be around 3% below its pre-pandemic level at the start of 2022 if private-sector forecasters are correct.

Separate figures showed the current-account deficit narrowed sharply to 2.8 billion pounds in the second quarter. The gap represented just 0.6% of GDP, the least since 2011.

Amid the disruptions inflicted by the pandemic, imports fell faster than exports and Britain recorded a significantly smaller deficit on investment income as foreign investors earned less on their earnings in the U.K.

©2020 Bloomberg L.P.