Health spend boosted UK growth but inflation already had its teeth into households

Danni Hewson
31 March 2022

•    UK GDP grew 1.3% Q4 2020 
•    Household disposable income fell 0.1%
•    Household savings ratio decreased by 0.7% 

Danni Hewson, AJ Bell financial analyst, comments on the latest GDP figures from the ONS:  

“It might seem odd, but Omicron actually provided a substantial boost to UK economic growth in the last three months of 2021. People rushed out to get their booster jabs and they tested to make sure they could see friends and family. Whilst people did cut back on socialising in bars and restaurants as confidence waned, the rush to buy Christmas gifts had already seen a surge in activity for white van man, employment agencies were hives of activities as people took advantage of the vibrant labour market and travel agents were finally back in business.  

“Growth was stronger than had been forecast and by the end of the year the UK economy was a hair’s breadth from where it had before the ravages of Covid. But even in the dying days of 2021 inflation was already packing a punch. Household’s disposable income fell, people started to dip into savings as a way to offset those inflationary pressures, put simply people were having to pay more for what they wanted.

“And the erosion of that cushion is worrying. How long can it help households deal with rising prices, what of those households that weren’t able to build up that cushion to begin with. With the expectation that this year will deliver the biggest fall in living standards since the 1950’s alarm bells are clanging, and damage done to savings and pension contributions in the now will have consequences in years to come. And the squeeze has only just begun, the pressures households were experiencing last year will be nothing compared to what is to come.  

“But if the glass was half empty there are still good things to find in the data. UK PLC has been working hard to claw its way back from the Covid cliff top and for the first time in decade British businesses were earning more cash abroad than foreign businesses were earning in the UK and with so much disruption to supply chains it’s interesting to note that the trade deficit has narrowed. 2021 was the year Britain dusted itself off but inflation is expected to act like boggy ground slowing momentum and 2022 will be very different indeed.”

Danni Hewson
Financial Analyst

Danni spent more than 19 years at the BBC, presenting and reporting on business news across a variety of programmes – including BBC Breakfast, BBC News Channel, BBC Look North and latterly Radio 5 Live’s flagship business programme ‘Wake up to Money’. She is now responsible for producing analysis and commentary across a broad range of subjects at AJ Bell, from financial markets, to economics and personal finance.

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