Highlights
- Household saving ratio drops to 9.5 per cent, lowest since mid-2024, as tax increases outpace income growth.
- GDP growth confirmed at 0.1 per cent for July-September period, down from 0.2 per cent in previous quarter.
- Britain's economic momentum fades after strong start to 2025, with zero growth expected in final quarter.
British households saved significantly less between July and September this year as higher taxes squeezed disposable incomes, forcing families to dip into savings to maintain spending levels, according to official data from the Office for National Statistics.
The saving ratio dropped by 0.7 percentage points to 9.5 per cent, its lowest level in over a year, as real household disposable incomes took a substantial hit from tax increases which outweighed income growth and inflation pressures.
Despite the financial squeeze, household consumption grew by 0.3 per cent from the second quarter when it showed no growth, marking the fastest quarter-on-quarter increase in a year.
The ONS confirmed gross domestic product grew by only 0.1 per cent in the July-to-September period, matching initial estimates and forecasts by Reuters-polled economists.
Growth in the April-to-June period was revised down to 0.2 per cent from a previous estimate of 0.3 per cent, highlighting a broader economic slowdown.
Economic growth slows
Finance minister Rachel Reeves increased taxes in her first budget in 2024, including on some forms of wealth income, although most of the burden fell on employers rather than individuals.
Britain grew by the most among Group of Seven large, advanced economies in the first half of 2025, alongside Japan, but has slowed sharply since then, partly due to months of uncertainty about possible tax increases in Reeves' second budget announced on 26th November.
The Bank of England expects zero GDP growth in the October-to-December period, though it believes the underlying pace of economic growth remains around 0.2 per cent per quarter.
Alex Kerr, UK economist at Capital Economics, noted "The breakdown in growth in Q3 was a bit less reliant on government spending than in the first estimate."
Britain's GDP in the third quarter was 1.3 per cent higher than a year ago, while on a per capita basis, output was 0.9 per cent higher than the previous year.
The current account deficit totalled £12.1 bn in the three months to September, equivalent to 1.6 per cent of GDP, down from 2.8 per cent in the second quarter.
Capital Economics expects only 1.0 per cent growth next year, down from 1.4 per cent this year, as the economic slowdown continues following Britain's strong start to 2025.
