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Quarterly Household Release, Q4 2011

Released: 16 April 2012 Download PDF

Abstract

As part of the Measuring National Well-being Programme the Office for National Statistics is producing this new quarterly release on the household sector to emphasise the household perspective of economic activity. This release focuses on household actual income and expenditure, which are adjusted for in-kind services provided by the state, such as subsidised healthcare and education services. It is important to consider household actual income and expenditure as the in-kind benefits have implications for well-being and vary from one country to another and over time. The release also considers household balance sheets, which act as an important indicator of the sustainability of households financial positions. For more information about this release and the data series included within it please see the accompanying article.

Key Points

  1. Real household actual income per head fell by 0.1 per cent in the fourth quarter of 2011 compared with the third quarter of 2011, a slightly slower fall than the previous quarter. 
  2. Real household actual expenditure per head increased by 0.2 per cent in the fourth quarter of 2011 compared with the third quarter of 2011.  This is the first time household actual expenditure has grown since the second quarter of 2010.
  3. Household financial assets increased slightly relative to income on the quarter and household financial liabilities decreased marginally relative to income, this is in line with recent trends.  
  4. The household saving ratio fell by 0.2 percentage points since the third quarter of 2011, to 7.7 per cent in the fourth quarter of 2011.   

Real household actual income and expenditure

In the fourth quarter of 2011, real household actual income per head, taking account of inflation, fell by 0.1 per cent compared with the previous quarter.  Between 2010 and 2011, actual income per head fell by 1.9 per cent, greater than the 1.2 per cent fall between 2009 and 2010. This partially reflects how inflation has affected household incomes over the past two years. 

In the fourth quarter of 2011, household actual expenditure per head, taking account of inflation, grew by 0.2 per cent compared with the previous quarter. This was the first time there had been an increase since mid-2010. Household actual expenditure per head also fell by 1.4 per cent between 2010 and 2011.

The rise in household expenditure in the fourth quarter of 2011 and the fall in household income meant that the household saving ratio also fell slightly, to 7.7 per cent in the fourth quarter of 2011.

Figure 1: Real quarterly change in household actual income and expenditure per head

United Kingdom

Chart showing the quarterly change in household actual income and expenditure per head for the United Kingdom
Source: Office for National Statistics

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The analysis above takes account of the impact of inflation, however, in the following sections the impact of inflation is not accounted for.  In 2011 the increase in prices (as measured by the implied household and NPISH final consumption deflator) was faster than the increase in both household actual incomes and household actual expenditure.  This is a turnaround from pre-recession when the increase in incomes and expenditure was faster than the increase in prices.  

 

Figure 2: Annual change in prices and household actual income and expenditure

United Kingdom

chart showing the annual change in the price level and household actual income and expenditure for the United Kingdom for the period 2005 to 2011
Source: Office for National Statistics

Notes:

  1. Prices are represented by the implied household and NPISH final consumption expenditure deflator

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Notes for Real household actual income and expenditure

  1. Real household actual expenditure is in chained volume measures whereas real household actual income is deflated using the household final consumption expenditure deflator.

Household actual income

Without taking account of inflation household actual income increased by 0.9 per cent in the fourth quarter of 2011 compared with the third quarter of 2011.  Although this is the same change that was seen in the previous quarter, the drivers of the change differed slightly. While wages and salaries continued to be the main driver, capital income also returned to a positive contribution and income from sole traders and housing services continued to contribute positively.  This was accompanied by a slower increase in social benefits and an increase in taxes and social contributions, which has a negative effect on household actual income.

Figure 3: Quarterly change in household actual income (current prices)

United Kingdom

Chart showing the quarterly change in household actual income and the contributions of the components to this change
Source: Office for National Statistics

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The main positive contribution to household actual income in the fourth quarter of 2011 came from wages and salaries, which increased by 1.0 per cent, contributing 0.6 percentage points to growth in household actual income. This is similar to the change seen in the previous quarter. However, wages and salaries increased only 2.1 per cent in 2011 as a whole, while the average increase in the price level was 4.0 per cent (as measured by the household and NPISH implied deflator, see figure 2).  Showing that the prices households are facing are increasing at a faster pace than wages and salaries.

Capital income, the income generated from wealth, grew by 3.4 per cent in 2011 quarter four, contributing 0.3 percentage points to the change in household actual income. This followed a fall of 2.4 per cent in the third quarter of 2011, contributing -0.2 percentage points. 

The change in the income from sole traders and housing services also increased more strongly in 2011 quarter four, by 2.0 per cent, contributing 0.3 percentage points to the growth in household actual income.

Growth in social benefits slowed to 0.6 per cent in 2011 quarter four, contributing 0.2 percentage points to household actual income growth.  This reflected a fall in cash benefits; offset by continued increase in social benefits in kind (benefits such as health and education services). Meanwhile there was stronger growth of 1.4 per cent in taxes and social contributions, which reduces household income and therefore contributed -0.3 percentage points to the change in household actual income.   

Notes for Household actual income

  1. This analysis is conducted on current price data due to data availability; as such the aggregate is different to that quoted in the first section

Household actual expenditure

Without taking account for inflation household actual expenditure increased in the final quarter of 2011, and by more than the previous quarter.  This was driven largely by an increase in spending on other goods and services.  Also contributing positively was expenditure on social benefits in kind, housing including energy.

Figure 4: Quarterly change in household actual expenditure (current prices)

United Kingdom

Chart showing the quarterly change in household actual expenditure and the contributions of the components to this change
Source: Office for National Statistics

Notes:

  1. Components may not sum to total as net tourism is not included

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Driving the increase in household actual expenditure in the fourth quarter of 2011, was an increase in other goods and services, with growth of 2.0 per cent contributing 0.9 percentage points to the growth in household actual expenditure. This was driven by the increase in services, but there was also an increase in semi-durable goods (goods that are used continuously or repeatedly over a period of a year, but tend to have a shorter lifespan and significantly lower purchaser price than durable goods, for example an item of clothing).

Social benefits in kind also contributed positively to the change in household actual expenditure, growing by 2.3 per cent and contributing 0.4 percentage points to household actual expenditure growth. This followed growth of 1.1 per cent in the previous quarter, which contributed 0.2 percentage points to the change in household actual expenditure. This is the consumption of benefits in kind from the government, such as health and education services.

Spending on housing and energy grew in 2011 quarter four, by 1.3 per cent, contributing 0.2 percentage points to household actual expenditure growth. This is slightly stronger than the increase seen in the previous quarter, and follows weakness in early 2011. 

Spending on food and non-alcoholic beverages fell by 0.9 per cent in 2011 quarter four, contributing -0.1 percentage points to the growth in household actual expenditure.  This is a turnaround from growth and a positive contribution in the previous quarter. 

Spending on durable goods (goods that can be used repeatedly or continuously for longer than a year – for example cars and appliances etc) fell by 0.8 per cent and contributed -0.1 percentage points to household actual expenditure growth. This is a return to the recent trend of weakness in household spending on durable goods following growth in 2011 quarter three.

Notes for Household actual expenditure

  1. This analysis is conducted on current price data due to data availability; as such the aggregate is different to that quoted in the first section

Household balance sheets

In the final quarter of 2011, households’ financial assets relative to income increased slightly, following a fall in the previous quarter. This includes all financial assets of households; however, it does not include any physical assets, such as property. The increase in households’ financial assets relative to income, in the final quarter of 2011, is in line with the general increase we have seen since early 2009.

In the fourth quarter of 2011, total financial liabilities relative to income remained fairly stable, falling only marginally. The major financial liability for a household is a mortgage.  Given this, the continued trend in financial liabilities could reflect movements in the housing market, and households paying down debt as a proportion of income following the financial crisis.

In line with this, net financial assets - the difference between financial assets and financial liabilities - have also risen slightly in the fourth quarter of 2011.

Household financial liabilities fell relative to income, from 1.57 in 2010 to 1.53 in 2011.  This is a continuation of the trend that has been seen since the peak in 2007.  Household financial assets also fell relative to income in 2011, from 4.43 in 2010 to 4.28 in 2011, loosing some of the gains made through 2009 and 2010.

Figure 5: Household financial assets and liabilities relative to income

United Kingdom

Chart showing household financial assets, financial liabilities and net financial assets for the household sector relative to household income
Source: Office for National Statistics

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Notes for Household balance sheets

  1. For these ratios, household financial assets and liabilities are divided by the most recent four quarters of household gross disposable income

Focus on...the household saving ratio

The saving ratio expresses the amount of saving that the household and non-profit institutions serving households (NPISH) sector makes in relation to its available resources. The changes in the household saving ratio over the past few years indicate the economic conditions that households have been facing. Before the financial crisis in 2008 the saving ratio had been on a downwards trend, driven by high levels of household spending. However, between the first quarter of 2008 and the second quarter of 2009, the saving ratio increased from 0.9 per cent in the first quarter of 2008 to a peak of 9.4 per cent in the second quarter of 2009. Following this, the saving ratio fell slightly to 6.0 per cent in the first quarter of 2011, before rising slightly more recently but falling off by 0.2 percentage points since the third quarter of 2011 to 7.7 per cent in the fourth quarter of 2011.

Figure 6: The household saving ratio

United Kingdom

Chart showing the household saving ratio for the United Kingdom on a quarterly basis from 2005 Q1 to 2011 Q4
Source: Office for National Statistics

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In 2008 and 2009, the economic conditions facing households were tough. Besides the impact of lower employment and rising unemployment, households were affected by modest wage growth, reduced access to borrowing, and reductions in house prices and equity markets; leading to households curbing their spending and increasing their saving. However, during this period, household income continued to grow on an annual basis, supported by lower mortgage interest payments, lower taxes paid by households, and higher benefits paid to households. This resulted in households saving more, causing the saving ratio to increase.

By 2010, the influences that had been supporting household incomes had started to unwind, partially offsetting the impact of rising employment, and highlighted the extent to which households continued to face difficult financial circumstances even though GDP had risen above the lowest levels in 2009. Most significantly, the effect of inflation in reducing household incomes more than doubled between 2009 and 2010. As a result, the spending power of household incomes was eroded, with implications for household spending and saving, and therefore economic growth and the economic well-being of households.

This trend continued into early 2011, with 2011 quarter one having the lowest saving ratio in two years. However, in 2011 quarter two the saving ratio rose again and has remained at a similar level through the remainder of 2011.  The rise in the saving ratio in the second quarter of 2011 was a result of lower spending by households and stronger growth in household incomes.  However, the strength in household income in the second quarter of 2011 was driven by an increase in benefits, with growth in wages and salaries remaining similar to the previous quarter. 

Since early 2011, household spending has recovered slightly, leading to a slight fall in the saving ratio in the final quarter of 2011. Additionally the positive contribution from benefits has reduced and there has been an increase in taxes paid by households. 

About the ONS measuring national well-being programme

 
This release is published as part of the ONS Measuring National Well-being Programme.

The programme aims to produce accepted and trusted measures of the well-being of the nation - how the UK as a whole is doing. It is about looking at 'GDP and beyond' and includes:

  • greater analysis of the national economic accounts, especially to understand household income, expenditure and wealth

  • further accounts linked to the national accounts, including the UK Environmental Accounts and valuing household production and 'human capital'

  • quality of life measures, looking at different areas of national well-being such as health, relationships, job satisfaction, economic security, education environmental conditions

  • working with others to include the measurement of the well-being of children and young people as part of national well-being

  • measures of 'subjective well-being' - individuals' assessment of their own well-being

  • headline indicators to summarise national well-being and the progress we are making as a society

The programme is underpinned by a communication and engagement workstream, providing links with Cabinet Office and policy departments, international developments, the public and other stakeholders. The programme is working closely with Defra on the measurement of 'sustainable development' to provide a complete picture of national well-being, progress and sustainable development.

Find out more on the Measuring National Well-being website pages.

Background notes

  1. Components of Household Actual Income and Expenditure

    Household Actual Income
    Component National Accounts Definition
    Wages and salaries D11. wages and salaries
    Sole trader income and housing services B2G and B3G. gross operating surplus of households including gross mixed income
    Capital income D4 Net. property income
    Social benefits D62 net. social benefits and D63 net. social benefits in kind
    Taxes and social contributions D612. Received imputed social contributions, D5 paid. taxes on income and other current taxes, D6112 paid. employee social contributions and D6113 paid.  social contributions by self- and non-employed.
    Other D7 Net other current transfers.
    Household Actual Expenditure
    Component National Accounts Definition
    Durable goods Total durable goods
    Housing including energy COICOP 04 (energy includes water, electricity, gas and other fuel)
    Food and non-alcoholic  beverages COICOP 01
    Other goods and services All goods and services excluding durable goods, COICOP 01 and COICOP 04.
    Social benefits in kind D63. net social benefits in kind
    Expenditure of non-profit institutions serving households P31. Expenditure of NPISH

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  2. The effect on growth of adjusting for social benefits in kind

    Current prices

    Growth in household income, social benefits in-kind and household actual income
    Household income Social benefits in kind Household actual income
    2008 3.7 7.1 4.3
    2009 3.1 6.3 3.6
    2010 3.9 2.6 3.6
    2011 2.7 3.2 2.8
    Growth in household expenditure, social benefits in-kind and household actual expenditure
    Household expenditure Social benefits in kind Household actual expenditure
    2008 1.9 7.1 2.8
    2009 -2.2 6.3 -0.7
    2010 5.4 2.6 4.8
    2011 2.7 3.2 2.8

    Table source: Office for National Statistics

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  3. National Accounts Revisions Policy

    The data in this release are subject to revisions following the ONS National Accounts Revision policy.  The policy may be found on the National Statistics website

    Estimates for the most recent quarter are provisional and, as usual, are subject to revision in light of updated source information. 

  4. Next publication - 31 July 2012

    Issued by: Office for National Statistics, Government Buildings, Cardiff Road, Newport NP10 8XG

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  5. Details of the policy governing the release of new data are available by visiting www.statisticsauthority.gov.uk/assessment/code-of-practice/index.html or from the Media Relations Office email: media.relations@ons.gsi.gov.uk

Get all the tables for this publication in the data section of this publication .
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