Economy & Policy

Impact of financial crisis fades as families spend more than they did in 2006

British families are at last spending more money than they did before the financial crisis, splashing out on cars and holidays.

The average household spent £554.20 per week in 2016-17, excluding mortgage payments, the Office for National Statistics found.

That is up from £533 in the previous year, a low of £511.10 in 2012, and from £551.90 per week in 2006, meaning the pre-crisis level has now been exceeded.

Households are spending more on package holidays, too CREDIT: UNIVERSITY OF BRIGHTON

All of the figures are adjusted for inflation and quoted at the 2017 price level.

Transport is the most significant chunk of spending at £79.90 per week, up £5.40 on the year.

Most of that comes from owning and using cars, but £18.20 is made up of public transport, including an average of £3.80 per week on rail and tube fares, £1.40 on bus and coach tickets, and £6.60 on international flights.

Spending on recreation and culture also climbed by £5 to an average of £73.50 per week, as households put more money into package holidays, which cost an average of £26.80 per week.

Other significant items include spending on pets, TV services, cinema and theatre tickets, and gym memberships.

However, households are also spending more relative to their earnings, indicating the precarious nature of the financial recovery, as incomes are currently rising more slowly than prices.

Consumer prices rose by 3pc in the year to December, while the latest wage figures show earnings rose by 2.5pc in the 12 months to October.

2017 poundsHousehold spending is back above 2006 levelsSource: ONSTotal Expenditure20022004200620082010201220142016500510520530540550560570Powered by Highcharts Cloud

This inflation could have encouraged more spending, the ONS believes, as households may have responded by bringing forward some purchases before prices rise.

Families’ ability to spend more despite subdued earnings rests on decisions to save less or borrow more.

“In 2016, the household savings ratio fell to 7pc, the lowest seen since 2006. This shows that households chose not to save their money during this time period, which could be attributed to the low base interest rate of 0.25pc introduced in August 2016,” the ONS said.

“A low interest rate is a disincentive to save but it is an incentive to spend. In particular, it can encourage households to buy more goods and services on credit, as well as taking out loans, which would influence higher levels of household spending.”

A key element of that borrowing may relate to car sales, as most new cars are bought on Personal Contract Purchases, a hire loan product.

As a result average spending on those loans rose from £4.40 per week to £6.50 over the year.

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