This has helped to explain Britain’s weak economic recovery since the pandemic, including last year’s shallow recession. The UK’s economy is 2.3pc bigger than it was in the final quarter of 2019. By contrast the US has grown by 9.4pc over the same period.
It is not a coincidence that America’s savings rate has fallen to a 16-year low of below 3pc, with optimistic shoppers propelling an economic boom.
Notably, the “gangbusters” growth Britain enjoyed in the first half of this year was driven by trade and by Government spending, not consumer spending.
The one hope for Sir Keir is that households are in a much better position to spend, should they wish to. With lower debts and higher savings, relative to the size of the economy, an unleashed consumer spending boom could power US-like growth and help the Prime Minister achieve his goal of overseeing the fastest growing economy in the G7.
If that does not materialise, Britain risks suffering from the paradox of thrift: that saving more, while sensible for each individual household, may deprive the economy of vital spending and so make us all worse off in the end.
Much depends on families’ confidence for the future. The auguries are not promising.
Interest rate cuts are expected to be slower in Britain than in the US. Meanwhile, taxes are rising and the winter fuel allowance cut for most pensioners will hurt spending power.
That is spilling over into consumer confidence, driving a drop in GFK’s long-running index of household sentiment to its lowest level in a year in August.
“People are hearing what Keir Starmer is saying about all these tough challenges ahead, and they are taking it personally,” says Neil Bellamy, consumer insights director at the research group.
“If there is economic growth, it is not going to be consumer-led at the moment. People are almost retrenching in their spending and protecting themselves and their family first of all.”