1. Main points

  • Real household disposable income quarter on previous quarter growth was 0.2% in Quarter 3 (July to Sept) 2017 as a result of an increase in wages and salaries, partially offset by the rise in prices experienced by households.
  • Real household disposable income growth in 2016 has been revised down to flat from 0.1%, as previously published.
  • The saving ratio fell to 5.2% in Quarter 3 2017, due mainly to the growth in households’ spending exceeding the growth in households’ income.
  • In the non-financial account, the net borrowing position of households increased in the latest quarter. Households have now been net borrowers for four successive quarters for the first time since records began in 1987.
  • In the non-financial account, the net borrowing position for private non-financial corporations, financial corporations and central government decreased in Quarter 3 2017.
  • Mortgages held by households (that is the level of long term loans secured on dwellings) in Quarter 3 2017 grew at their slowest quarter on previous quarter rate since Quarter 1 (Jan to Mar) 2013.
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2. Things you need to know about this release

Understanding the sector and financial accounts

This bulletin presents UK aggregate data for the main economic indicators and summary estimates from the institutional sectors of the UK economy: private non-financial corporations, public corporations, financial corporations, central and local government, households, non-profit institutions serving households (NPISH) and the rest of the world sector, that are presented in the UK Economic Accounts (UKEA) dataset.

In September 2017, the households and NPISH sectors were published separately for the first time. Previously they were published as a combined sector. Indicators such as the households’ saving ratio and real household disposable income now come from the separated households-only sector.

This bulletin uses data from the UKEA. The UKEA provides detailed estimates of national product, income and expenditure, UK Sector Non-financial and Financial Accounts and UK Balance of Payments. These accounts are the underlying data that produce a single estimate of gross domestic product (GDP) using income, production and expenditure data.

The sector accounts are fully integrated, but with a statistical discrepancy, shown for each sector’s account. This reflects the difference between a sector’s net lending or net borrowing from the non-financial account and the net lending or net borrowing from the financial accounts, which should theoretically be equal but differ due to different data sources and measurement practices.

Comparability

Data in this bulletin are internationally comparable. The UK National Accounts are compiled in accordance with the European System of Accounts: ESA 2010, under EU law and in common with all other members of the European Statistical System. ESA 2010 is itself consistent with the standards set out in the United Nations System of National Accounts 2008: SNA 2008.

An explanation of the sectors and transactions described in this bulletin can be found in chapter 2 of the European System of Accounts 2010: ESA 2010 manual.

Estimates within this release

This bulletin includes new data for the latest available quarter, Quarter 3 (July to Sept) 2017 and revisions to data from 2016.

This bulletin follows the National Accounts Revisions Policy.

All data within this bulletin are estimated in current prices (also called nominal prices), with the exception of real households’ disposable income, which is estimated in chained volume measures.

Current price series are expressed in terms of the prices during the time period being estimated. These describe the prices recorded at the time of production or consumption and include the effect of price inflation over time. Chained volume measure price series (also known as real terms) remove the effect of price inflation.

All figures given in this bulletin are adjusted for seasonality, unless otherwise stated. Seasonal adjustment removes seasonal or calendar effects from data to enable more meaningful comparisons over time.

Population estimates published in this bulletin are consistent with those published on 22 June 2017 in the Population Estimates for UK, England and Wales, Scotland and Northern Ireland publication.

Real household disposable income (RHDI) explained

Household income is measured in two ways: in current prices (also called nominal prices) and in real terms, where the effect of price inflation is removed.

Gross disposable household income (GDHI) is the estimate of the total amount of income that households have available; that is, from wages received, income of the self-employed, social benefits, pensions and net property income (earnings from interest on savings and dividends from shares) less taxes on income and wealth. These are given in current prices. Gross disposable income tells us how much income households have to spend, save or invest in the time period being measured (quarter or year) once taxes on income and wealth have been paid.

Adjusting GDHI to remove the effects of inflation gives another measure of disposable income called real household disposable income (RHDI). This is a measure of the real purchasing power of household incomes, in terms of the physical quantity of goods and services they would be able to purchase if prices remained constant over time. To remove the effect of price changes on the current price GDHI data we use the most relevant national accounts price deflator: the households’ final consumption expenditure implied deflator. This divides total current price households’ final consumption expenditure by total chained volume measure households’ final consumption expenditure to derive a price index.

GDHI is then divided by this price index to remove the effects of price inflation. In other words, RHDI enables a comparison over time of how much households have to spend, save or invest once taxes on income have been paid, by supposing a given amount of money could buy the same amount of goods and services in each time period.

The households’ saving ratio explained

The saving ratio estimates the amount of money households have available to save (gross saving) as a percentage of their gross disposable income.

Gross saving is the difference between households’ total available resources (mainly wages received, revenue of the self-employed, social benefits and net income such as interest on savings and dividends from shares, but deducting taxes on income and wealth) and household consumption (expenditure on goods and services for consumption).

The saving ratio can be volatile and is sensitive to even relatively small movements in its components, particularly on a quarterly basis. This is because gross saving is a relatively small difference between two large numbers. It is therefore often revised at successive publications when there are revisions to data.

The households’ saving ratio is seen as an indicator of household financial conditions. A low saving ratio may imply that households are taking on more debt and acquiring fewer financial assets, such as pensions. Instead household income is spent on consumption. A higher saving ratio may imply that households are acquiring more assets and taking on less debt.

Reliability

Estimates for the most recent quarters are provisional and are subject to revision in the light of updated source information. Our revisions to economic statistics page contains articles on revisions and revisions policies.

Revisions to data provide one indication of the reliability of main indicators. Revisions triangles were published for the households and non-profit institutions serving households saving ratio. However, following the separation of the households and NPISH sectors, we are ceasing to produce the revision triangles for the households and NPISH saving ratio. In due course, we will reintroduce the revision triangle for the household only saving ratio.

Who uses these data?

The data used in this bulletin have a broad range of users. They are widely used by government departments to inform and monitor the effect of policy decisions. The data also aid assessments of the economy: such as informing the Bank of England’s Monetary Policy Committee (MPC) when setting monetary policy and the Office for Budget Responsibility’s (OBR) forecasts and evaluations of economic growth and public sector finances. Theoretical and policy debate is also supported by UKEA data at knowledge and research institutions such as think-tanks, lobby groups and universities by researchers, analysts, academics and students. Sector and financial accounts data is also used by analysts in the private sector.

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3. Real household disposable income growth slowed to 0.2% in Quarter 3 2017

Real household disposable income (RHDI) grew 0.2% in Quarter 3 (July to Sept) 2017. This was due to a rise in nominal gross disposable income (GDI) of 0.5%, partially offset by a rise in the household consumption deflator of 0.4%.

The quarter on previous quarter rise in nominal GDI was driven primarily by an increase in wages and salaries of £1.8 billion and a £0.7 billion fall in interest paid, for example, on loans. They were partially offset by a rise in taxes on self-employment income of £1.2 billion.

Figure 1 shows the quarter-on-quarter contributions of aggregated components to GDI percentage growth.

The growth in Quarter 3 2017 of RHDI slowed from 2.3% in Quarter 2 (Apr to June) 2017, which followed negative growth in Quarter 1 (Jan to Mar) 2017. The changes in growth for Quarter 1 and Quarter 2 2017 mainly reflect the increase in taxes on income in Quarter 1 2017, due partly to timing, as taxes on self-reported income and capital gains are paid in the first quarter.

Compared with the same quarter a year ago, RHDI grew 0.4% in Quarter 3 2017. This is 7.4 percentage points lower than the peak growth of 7.8% in Quarter 3 2015. Growth in RHDI has been slowing down recently and in the latest four quarters, Quarter 4 (Oct to Dec) 2016 to Quarter 3 2017, the average quarter on same quarter a year ago growth rate of RHDI was negative 0.7%.

Revisions to real household disposable income were small. RHDI growth in 2016 has been revised down to flat (0.0%) from 0.1% as previously published. This revision is due mainly to a downward revision of £2.2 billion to social benefits other than transfers in kind received by households in 2016. In contrast, RHDI quarter on previous quarter growth in Quarter 2 2017 has been revised up from 1.6% to 2.3%, due primarily to a downward revision to total social contributions paid (£1.3 billion), an upward revision to social benefits other than transfers in kind received (£0.4 billion) and a downward revision to taxes on income and wealth (£0.6 billion).

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4. Households’ saving ratio fell to 5.2% in Quarter 3 2017; the third lowest rate in 20 years

The saving ratio fell to 5.2% in Quarter 3 (July to Sept) 2017 from 5.6% the previous quarter, meaning it remains historically low as can be seen in Figure 2. The saving ratio has only been lower than that of Quarter 3 2017 on two occasions over the last 20 years; Quarter 1 (Jan to Mar) 1999 (4.7%) and Quarter 1 2017 (3.7%).

Gross saving fell by £1.5 billion in the latest quarter while gross disposable income (GDI) increased £1.7 billion, compared with the previous quarter. As a result, the saving ratio, which is calculated as the amount of money households have available to save (gross saving) as a percentage of their gross disposable income, decreased quarter-on-quarter.

The fall in the saving ratio was caused by a rise in household spending (that is, households’ final consumption expenditure) of £2.6 billion, due mainly to a rise in spending on utilities and transport, and a rise in taxes on self-employment income of £1.5 billion. This was offset partially by a rise in wages and salaries (£1.8 billion) and a fall in interest paid by households (£0.7 billion).

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5. The decline of the UK’s saving ratio is not uncommon amongst G7 countries

Amongst the G7 countries (a group of advanced economies), the UK is not alone in its decline of the saving ratio. The saving ratio of the USA has declined in six of the last seven quarters since Quarter 1 (Jan to Mar) 2016. Over the same period, Italy’s saving ratio declined in four of the latest quarters up to Quarter 2 (Apr to June) 2017, when they last published and Canada’s saving ratio declined in the first three quarters of 2017. As Table 1 shows, France is the only country not experiencing a notable decline in the saving ratio, while data for Germany and Japan post-Quarter 1 2016 is limited or unavailable for comparison.

As noted in our Quarterly Sector Accounts: April to June 2017 bulletin, the low UK saving ratio has become more comparable with the USA, whereas the saving ratio for Eurozone countries was higher at 12.2% in 2016.

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6. Net borrowing positions from the non-financial account of private non-financial corporations, financial corporations and general government fell in Quarter 3 2017

The net lending or borrowing of a sector represents the net resources that the sector makes available to the rest of the economy.

The position is determined by saving, the balance between national disposable income and final consumption expenditure, and is reduced or increased by the balance of capital transfers to provide an amount available for financing investment. The final net lending/borrowing position then reflects total investment in non-financial assets.

If actual investment is lower than the amount available for investment, the balance will be positive – representing net lending. Similarly, when the balance is negative, borrowing is represented.

The only UK sector currently in a net lending position is the non-profit institutions serving households sector. All other UK sectors are currently net borrowers in the non-financial account.

Non-financial corporations

The net borrowing position of non-financial corporations (NFC) has gradually fallen following a peak net borrowing position of £14.4 billion in Quarter 3 (July to Sept) 2015, as shown in Figure 3. In the latest quarter, it fell to £2.6 billion, primarily as a result of a rise in distributed income of corporations of £2.6 billion received by private non-financial corporations (PNFC) alongside a fall of £2.9 billion in dividend payments and an increase in their gross operating surplus of £1.7 billion. This was partially offset by a rise in gross fixed capital formation of £1.1 billion by PNFCs.

Financial corporations

The net borrowing position of financial corporations decreased to £6 billion in Quarter 3 2017, following net borrowing of £7.7 billion in the previous quarter. This decrease was driven mainly by a fall in the payments of distributed income of corporations of £3.6 billion (these include dividend payments) and partially offset by a fall in gross operating surplus of £1.1 billion.

General government

In Quarter 3 2017, the net borrowing position for general government slightly decreased to £12.1 billion from £14.1 billion in the previous quarter. This follows Quarter 2 (Apr to June) 2017, which saw the largest quarter-on-quarter increase of £6.6 billion in the net borrowing position for general government since Quarter 3 2013.

Households

The households sector was a net lender up to Quarter 3 2016. However, the households sector has now been a net borrower for four successive quarters – meaning that they are borrowing in order to fund their activities. In the latest quarter, Quarter 3 2017, households’ net borrowing increased by £1.2 billion to £2.8 billion, compared with the previous quarter.

Rest of the world

The net lending position of the rest of the world decreased slightly in Quarter 3 2017, reflecting the decrease in the net borrowing position of other UK sectors as stated previously. Further details of the UK Balance of Payments position can be found in the Balance of payments bulletin.

Revisions to net lending/borrowing positions in the non-financial account

Revisions to the net lending/borrowing positions of UK sectors in the non-financial account were small in the period Quarter 1 (Jan to Mar) 2016 to Quarter 2 (Apr to June) 2017. The only notable revision was to the net borrowing position of private non-financial corporations, revised down by an average of £1.2 billion per quarter.

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7. Household debt rose by its slowest rate since Quarter 4 2013

The households’ debt-income ratio, defined as the ratio of total households sector loans (as liabilities) and the previous four-quarter sum of household gross disposable income, fell for the first time since Quarter 4 (Oct to Dec) 2015 by 0.3 percentage points. This fall was due to the growth in income (measured as the sum of the previous four-quarters of gross disposable income) growing at a faster rate of 0.6% than the growth in household debt of 0.4%, quarter-on-quarter.

The slowdown in the growth in household debt was due partly to a slowdown in the growth of balance sheet levels of long-term loans secured on dwellings. It grew by only £0.8 billion in Quarter 3 (July to Sept) 2017 compared with the previous quarter, its slowest quarter-on-quarter increase since Quarter 1 (Jan to Mar) 2013.

Figure 4 shows the shift in the type of loans households are taking out. In the decade before the 2008 economic downturn, the quarter-on-quarter a year ago increases in loans secured on dwellings were significantly larger than other short- and long-term loans. Since Quarter 3 (July to Sept) 2013, increases in other short- and long-term loans have become similar to that of loans secured in dwellings by households

In the first three quarters of 2017, growth in other short- and long-term loans outstripped loans secured on dwellings, on a quarter-on-quarter a year ago basis.

The households’ debt-income ratio reached its most recent low point in Quarter 4 2015 and had been rising up until Quarter 2 2017. High debt relative to income is seen as an indicator of slower future economic growth.

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8. New visual for flow of funds

Since the recent global financial crisis, the international community has had an increased focus on the analysis of financial stability by aiming to better understand the build-up of financial risk in different sectors of the economy. This is particularly important for countries, like the UK, which have a significant financial sector. In light of the growing demand for improvements to data to support that analysis, an important area was identified internationally to develop coverage in the flow of funds.

On 17 November 2017, we published UK flow of funds to help users visualise the from-whom-to-whom estimates by using Sankey diagrams and heatmaps showing the counterparty relationships between institutional sectors.

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9. National accounts articles

We have published an article detailing the scope of the UK National Accounts Blue Book 2018 publication. Further articles discussing the methodological changes and impacts will be published and available from the National accounts articles web page.

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11. Upcoming changes to this bulletin

This Quarterly sector accounts bulletin is currently the subject of a review by the Office for Statistics Regulation to determine its designation as a National Statistic. National Statistics are produced to high professional standards set out in the Code of Practice for Official Statistics. They undergo regular quality assurance reviews to ensure that they meet customer needs. They are produced free from any political interference.

Changes to Quarterly sector accounts datasets

From 29 September 2017, the households account has been separated from the non-profit institutions serving households account, enabling analysis of the households sector alone. For the first publication we included both sets of tables within the quarterly sector accounts, however, following user feedback we have withdrawn the combined Households and NPISH ( HH and NPISH) sector tables, J1, J2 and J3. The Households (HH) tables remain. Please note, all the current price and real data is still available within the United Kingdom Economic Accounts publication.

Additionally, we have added in three new tables to enhance users experience:

  • B.9f – Sectors’ net lending (+) / net borrowing (-) from the financial account
  • BF.90 – Sectors’ net financial worth from the financial balance sheets
  • GNI – Sectors’ share of gross national income (GNI)

We have also taken the opportunity to review the table numbering, which was a legacy from when the sector accounts information was part of the Quarterly national accounts publication. The complete list of tables is shown in Table 2.

Withdrawal of the UKEA PDF

The Office for National Statistics (ONS), like all government departments, has to ensure all of its outputs meet accessibility guidelines. As a result, from the Quarter 4 (Oct to Dec) 2017 release onwards we will no longer be publishing a PDF file of the United Kingdom Economic Accounts (UKEA). The data contained in the current PDF file will continue to be available within the UKEA dataset and reference tables that are currently published.

English Housing Associations

Following passage of The Regulation of Social Housing (Influence of Local Authorities) (England) Regulations 2017, ONS has completed an assessment of the housing associations sector in England. The review has been completed in the context of international rules laid out in the European System of Accounts 2010 and the accompanying Manual on Government Deficit and Debt 2016.

We have concluded that registered providers of social housing in England are private, market producers and as such they will be reclassified to the private non-financial corporations (S.11002) sub-sector for the purpose of national accounts and other economic statistics. This classification takes effect from 16 November 2017, the date the regulations came into force.

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12. Quality and methodology

The Quarterly sector accounts Quality and Methodology Information report contains important information on:

  • the strengths and limitations of the data and how it compares with related data
  • uses and users of the data
  • how the output was created
  • the quality of the output including the accuracy of the data

The Quarterly sector accounts and the UK Economic Accounts are published at quarterly, pre-announced intervals alongside the Quarterly national accounts and Quarterly balance of payments statistical bulletins.

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