All the talk of rebalancing the UK economy that we heard from policymakers in the immediate aftermath of the financial crisis unfortunately, has led to nothing. The UK economy is more unbalanced today than ever before.
We had a recent meeting with Darren Winder of the Lazarus Partnership – Darren has been a very valuable input into our investment process for many years and his extensive knowledge and database on the UK economy is pretty much unsurpassed. We covered a lot of ground during the meeting, but some charts really stood out. Here we provide a few of them, which we believe provide strong evidence of the continued imbalances within the UK economy and the unsustainable nature of recent economic growth.
First, the household savings ratio. UK households are saving less now than ever before – at least as far back as records go, which is the mid-1960s. The average household currently saves less than 4% of its income each year – we are a consumer economy but surely a higher savings rate would be a positive step towards a more balanced economy, capable of delivering long-term prosperity, not least because in a theoretical sense savings should equate to investment? It was widely acknowledged as we emerged from the financial crisis that the UK savings rate was too low – there was considerable talk about the desire for a higher savings rate in order reduce the UK’s vulnerability to shocks in the future. This clearly hasn’t happened.