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Only one Western country suffers bigger household spending cuts than Britain

Shoppers on the high street in Bexleyheath, Greater London
Shoppers on the high street in Bexleyheath, Greater London

British families have reined in spending more dramatically than households in almost any other rich nation since Covid, figures show.

Household consumption in the UK was still 1.9pc lower at the end of last year than in the final three months of 2019 when adjusted for inflation, according to Telegraph analysis.

The drop – almost unrivalled among the 38 rich countries in the Organisation for Economic Co-operation and Development (OECD) – highlights the damage done to living standards since the Covid crisis, following surging inflation and a jump in interest rates.

Only families in the Czech Republic have reduced their consumption more than the UK since the pandemic, at -7.8pc.

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Ruth Gregory, deputy chief UK economist of Capital Economics, said the cutbacks reflect the UK’s higher and longer lasting inflation problem, which was worse than in most other nations following stringent lockdown measures.

She said: “The UK had the worst of both worlds, a big energy shock like the eurozone and worse labour shortages like the US.”

It comes after fresh figures from the Office for National Statistics showed retail sales flatlined in March after growing only 0.1pc in February, suggesting no bounceback is imminent.

The UK’s slump puts it far behind its rivals and the US in particular. American families’ consumption has risen by 10.6pc since the end of 2019.

While the US economy has grown far faster than the UK and the eurozone, Ms Gregory said that its pandemic stimulus may also have played a role.

She said: “The larger government stimulus during the pandemic, stronger employment growth and a higher propensity to run down ‘excess savings’ appear to have contributed to particularly strong consumer spending growth in the US.”

She added that data from the International Monetary Fund suggest the US spent funds equal to 25pc of its GDP on pandemic support schemes, versus 19pc in the UK.

British families appear to have been growing their savings in recent quarters, suggesting the recession has made them cautious.

It stands in stark contrast to American families who for the past two years have been drawing down their nest eggs, with savings now below its pre-pandemic average.

Britons are closer to their European peers, although families on the continent have not restrained their spending by as much.

In France, household consumption is up 1.1pc in real terms while Italians have cut back by 0.6pc since the end of 2019.

Germany has suffered a more comparable drop of 1.6pc, with its industry-heavy economy still teetering on the brink of recession after being hit hard by the energy crisis.

Ms Gregory said British families had suffered bigger rises in the price of everyday goods than people in other rich countries, prompting them to buy fewer things to offset higher costs.

She said: “The UK appears to have suffered from worse supply shortages than elsewhere.

“This was particularly the case in the labour market and seemed to contribute to the UK’s labour market being tighter than elsewhere and wage growth rising faster and feeding into higher inflation.”

Economists expect household spending to slowly recover in coming months, as real incomes recover after the cost of living crisis and are boosted by tax cuts.