High savings buffer against inflationary shocks, strengthening the risk resistance of UK households.

By the end of 2025, savings in British households continued to increase on a historical high, indicating that consumers have enough cushion to deal with any impact from the inflation rebound triggered by the Iran war. Data released by the UK's National Statistics Office on Tuesday showed that the savings rate in the fourth quarter (i.e. the proportion of disposable income not spent) rose from 9.1% to 9.9%, with real per capita disposable income increasing by 1.2%. British consumer savings far exceed pre-pandemic levels, but this has restrained economic growth in the UK in recent years. However, their cautious spending also gives them the ability to cope with the next energy price shock, while debt levels are near the lowest levels in over two decades. In the fourth quarter of last year, household deposits in the UK increased by 38.1 billion ($50.3 billion), and debt levels remained near their lowest levels since 2002. The rise in the savings rate was driven by non-pension savings, as consumer spending growth slowed down. Elliott Jordan-Doak, senior economist in the UK at the macroeconomic consulting firm Pantheon Macroeconomics, said, "We believe consumers still have sufficient buffer space to lower the savings rate, thereby mitigating the impact of rising energy prices in the remaining time of 2026." He pointed out that consumer expectations for the Labour government to introduce tax increase budgets again in November last year have intensified consumer caution. The UK's National Statistics Office also confirmed that economic growth was weak in the second half of 2025, with GDP increasing only by 0.1% in the last three months. In per capita terms, output fell by 0.1%, the first quarterly contraction in two years. UK's overall economic growth forecast for 2025 is slightly raised to 1.4%, higher than the previous forecast of 1.3% and higher than other major European countries; in per capita terms, the growth rate is 1.1%. In recent years, affected by a series of shocks such as the COVID-19 pandemic and the Russia-Ukraine conflict, British households have increased their savings. As the Middle East conflict continues to escalate, with the US and Israel attacking Iran, fuel prices have soared, putting pressure on drivers. Since the outbreak of the pandemic, household spending in the UK has been weak, in stark contrast to the US. In the US, consumers are willing to use their savings, driving strong GDP growth. Jonathan Raymond, investment manager at Quilter Cheviot, said, "Rising energy prices are starting to impact economic activity, as consumers and households cut back on spending, inflationary pressures re-emerge, and the risk of weak demand increases." The Bank of England predicts that rising gasoline prices will push the inflation rate from the current 3% to 3.5% in March. Economists say that if energy bills continue to rise later this year, price increases could exceed twice the Bank of England's 2% inflation target. As the market expects the Bank of England to raise interest rates to curb inflation, mortgage rates have already surged. Data released on Tuesday also showed that the UK's current account deficit in the fourth quarter widened to 18.4 billion ($24.3 billion), equivalent to 2.4% of GDP. This deficit deteriorated significantly from 10.7 billion in the third quarter, mainly due to a sharp increase in the trade deficit and further widening of the investment income gap. The basic deficit, excluding precious metals (including non-monetary gold), narrowed from 9 billion to 8.4 billion, accounting for 1.1% of GDP.