Tax increases have squeezed the UK household savings rate below 10%, and consumer spending cuts have dragged down economic recovery.

The UK's Office for National Statistics said on Monday that due to the squeeze effect of a 6 billion (approximately $8 billion) increase in tax revenues on income, the savings of UK consumers in the third quarter have decreased. From July to September this year, the savings ratio in disposable income of households in the country decreased from 10.2% in the second quarter to 9.5%. Per capita real household disposable income decreased by 0.8%, mainly driven by increases in income tax and property tax. This means that the standard of living in the UK has not experienced growth since the end of last year. The data also confirmed that after strong growth in the first half of this year, the economic growth rate significantly slowed down to 0.1% in the third quarter. The economic growth rate for the second quarter was revised to 0.2%, instead of the previously estimated 0.3%, but the data for the last three months of 2024 was revised upwards. The savings rate has been maintained at a historically high level, which has restrained economic growth in recent years, and Monday's data almost failed to dispel the continuing cautious concerns of consumers. The UK's Office for National Statistics said that the decrease in non-pension savings may be related to the freeze of tax thresholds, which increased the amount of taxes collected from employment and self-employment. The UK savings ratio has dropped to its lowest level in over a year. Just weeks before this data was released, Chancellor Rishi Sunak confirmed that the personal income tax threshold would remain unchanged for another three years, which was one of the main tax increases in her budget on November 26. This is the first time in over a year that the ratio has fallen below 10%, reflecting that after experiencing a series of economic shocks and double-digit inflation, UK households are being cautious. This phenomenon has been a major drag on the economy for some time and has resulted in noticeable differences in the behavior of UK consumers compared to American people. The recovery of household spending is seen as a crucial factor to support the future growth expectations of the Bank of England and the Office for Budget Responsibility (OBR) in the coming years. Bank of England Governor Andrew Bailey admitted last week that uncertain global prospects are still making consumers cautious after the central bank lowered interest rates to the lowest level since the beginning of 2023. Although Sunak announced a 260 billion tax increase plan (mostly borne by households) in last month's budget, these tax measures are mainly concentrated later, and she provided subsidies in the short term for energy bills and railway ticket prices.