UK Consumers Saving Less as Taxes Squeeze Incomes, Data Shows
The Office for National Statistics (ONS) reported that the UK saving ratio fell to 9.5% in the third quarter of 2025, down 0.7 percentage points from the previous quarter and marking the lowest level in more than a year. This decline coincides with a 0.8% decrease in real household disposable income per capita in Q3 2025, attributed to higher income and wealth taxes.
The Chancellor, Rachel Reeves, announced a three-year freeze on personal tax thresholds intended to bolster public finances but resulting in more workers moving into higher tax bands. Business groups have criticized this alongside a £25 billion increase in employer National Insurance contributions (NICs) and lingering budget uncertainty for dampening economic growth.
ONS data also showed that GDP growth slowed to 0.1% in Q3 2025, down from 0.2% in Q2, which itself was revised down from 0.3%. There are expectations of a potential drop in consumer spending in Q4 2025, linked to pre-budget uncertainty.
In response to economic conditions, the Bank of England’s Monetary Policy Committee reduced interest rates by 0.25 percentage points to 3.75%, the lowest since early 2023. Inflation has fallen to 3.2% year-on-year from 3.6% in October but remains above the 2% target.
Economist Elliott Jordan-Doak noted that despite recent declines, the saving rate remains above the long-run average of 6.5% recorded from 2015 to 2019. He also anticipates a potential pick-up in GDP growth in Q1 2026 as the current budget cycle concludes.
