UK Growth is 'Artificial' as Britons Fail to Save

Trade union body the TUC has said that the economic recovery is "artificial" and propped up by credit card spending

Emma Wall 7 August, 2013 | 9:31AM
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Wage freezes, low interest rates and good weather have all meant Britons are opting to spend cash now rather than save for the future. This consumer spending has providing an artificial boost to the economy according to the TUC, and will cause long-term monetary issues. 

The trade union body said that he amount of money being saved by families across the UK has almost halved - falling from £20.1 billion to £11.4 billion.

To counter this, figures from the Office for National Statistics reveal consumer spending increased by 4.2%.

TUC General Secretary Frances O'Grady said the analysis showed that Britain's fragile recovery is “being propped up by families raiding their piggy-banks”.

He continued: "While any signs of growth are welcome, it looks like recent news has been driven by running down savings and Government propping up the housing market. This is hardly a sustainable route to recovery, and looks too much like a repeat of trends that drove the crash.

"A sustainable recovery needs to be based on growth, investment and a recovery in living standards. That's why Britain needs a pay rise."

The National Institute of Economic and Social Research issued its latest predictions for GDP growth, last Friday. Growth figures were revised upwards to 1.2pc this year, and 1.8pc in 2014, thanks to increases in consumer spending.

Fidelity's Alex Wright, Portfolio Manager of the UK Smaller Companies fund, said consumer confidence may be enough to keep the modest recovery growing. 

“Consumer confidence increased sharply in July as hopes of a UK economic recovery continued to grow," he said.

"This change in sentiment is driven partly by brighter news on the overall economy but in particular by changes in government housing policies which are stimulating the market. House prices rose for the seventh consecutive month in July, and on the back of this consumers are starting to increase their spending. If this confidence continues to build then it will help keep the modest recovery growing.”

 

 

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Emma Wall  is former Senior International Editor for Morningstar