Households watch spending to ease debt burden

The Financial Times reports that the 'household saving ratio' - recorded by the Office for National Statistics (ONS) - rose from 5.9% in the three months to March to 7.4% in the three months to June. The ratio reflects the percentage of income households can spend after paying for everything else they need.

However, the title 'household saving ratio' may be misleading. The figure is worked out by subtracting the amount households spend from the money they have available. This doesn't necessarily mean households are saving that money - it could also be spent on repaying debt.

Economists have looked again at previous data and realised the household saving ratio has been higher than previously thought since 2008, meaning households are working even harder than economists realised to improve their financial situation.

Inflation has been nearly twice the rate of earnings growth this year, which means households have less money to spend every month in real terms. As a result, people are naturally spending less, which impacts economic growth.

However, between the first and second quarter of this year, real household disposable income rose slightly (though not compared with the same period last year) because of higher welfare payments. It appears households may be remaining cautious and not spending the extra money - partly because of insecurity over the jobs market.

Elsewhere, the latest Markit Household Finance index suggested some households are getting into debt to make ends meet.

A spokesperson for debt management company Gregory Pennington commented: "Savings can help households in an emergency to get by without depending on borrowed money. However, there are many households that are still relying on debt. If your debts have already become a problem, it's time to speak to a debt expert about your situation."