Britons’ disposable income plunged the most in more than a quarter of a century in the first quarter, indicating continued pressure on the economy even as data showed the U.K. avoided a double-dip recession in 2012.
Real household disposable incomes fell 1.7 percent from the previous three months, the most since 1987, the Office for National Statistics said in London today. It also revised higher 2012 data to show that the U.K. avoided two consecutive quarters of contraction, the technical definition of a recession. Separately, gross domestic product rose 0.3 percent in the first quarter of this year, matching a previous estimate.
The economy is showing signs of strength after resuming growth in the first quarter, though consumers are under pressure as inflation outpaces pay growth and government spending cuts bite. Bank of England Governor Mervyn King, who is retiring and will be replaced by Mark Carney on July 1, says a recovery “is in sight,” though is “too weak to be satisfactory.”
“The top story may be that the early 2012 recession is no more, but this is just about the only good news in this data,” said George Buckley, an economist at Deutsche Bank AG in London. “First, even with no official recession the economy was still very weak over that period. Second, the squeeze in real incomes continues apace.”
The pound erased its gain against the dollar after the data, falling to a three-week low. It was at $1.5266 as of 11:25 a.m. London time, down 0.3 percent from yesterday.
In its revisions, the statistics office said the economy stagnated in the first quarter of 2012, having previously reported a 0.1 percent contraction. Still, GDP fell 0.1 percent in the last three months of 2011 and dropped 0.5 percent in the second quarter of 2012, more than the 0.4 percent drop previously reported.
The ONS said the economy shrank 7.2 percent from its peak in 2008 to the depths of the recession, more than the 6.3 percent previously estimated. That leaves GDP 3.9 percent below the peak, compared with 2.6 percent previously.
Today’s report also showed the savings ratio dropped to 4.2 percent in the first quarter, the least in four years, from 5.9 percent in the previous three months. It was as high as 7.4 percent a year earlier.
J Sainsbury Plc Chief Executive Officer Justin King said this week that U.K. households continue to struggle and criticized politicians for talking up the economy.
“It’s unrealistic to paint a picture which is not the reality that consumers are currently experiencing,” he said “Nobody should be planning their business today if they’re customer-facing on an expectation that consumers have extra money to spend.”
Domestic demand in the U.K. is also being undermined by the government’s spending squeeze. Chancellor of the Exchequer George Osborne yesterday outlined spending cuts he will make in 2015 and how 11.5 billion pounds ($17.6 billion) of savings will be divided between government departments. A weaker-than-expected economy has forced Osborne to extend the timetable for his austerity into a sixth year, to 2017-18.
The fiscal drive has left the BOE as the main source of support for the economy. The central bank holds its next policy meeting on July 3-4. It will be the first meeting led by Mark Carney, who succeeds King as governor on July 1.
“It would be sensible to aspire to a pace of recovery that would bring unemployment back to a sustainable rate over the two-to-three-year horizon,” King said on June 25. “There is a recovery, but my view is that it’s not sufficiently rapid enough.”
Elsewhere, an index of economic confidence in the euro area rose to 91.3 in June from 89.5 in May. Economists had forecast a reading of 90.4, based on the median of 32 estimates in a Bloomberg News survey.
German unemployment unexpectedly fell in June. The number of people out of work dropped by a seasonally adjusted 12,000 to 2.94 million, after a revised gain of 17,000 in May, the Nuremberg-based Federal Labor Agency said. Economists predicted an increase of 8,000.
In the Asia-Pacific region today, New Zealand reported a May trade surplus that was smaller than economists projected, while Vietnam’s economic growth accelerated in the second quarter. Data in the U.S. due later today may show initial jobless claims fell the week ended June 22 to 345,000 from 354,000.