Quarterly National Accounts (Q3) - Capital Economics
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Quarterly National Accounts (Q3)

UK Data Response
Written by Ruth Gregory

High savings rate paves the way for solid rebound in 2021

  • While a double-dip recession is a clear possibility if the Tier 4 COVID-19 restrictions are extended into 2021, Q3’s high saving rate provides optimism that as long as vaccines are effective and widespread, GDP will stage a strong rebound in the second half of next year.
  • The figures showed that the slump in GDP in Q2 was a little less severe than previously thought (-18.8% q/q compared to -19.8% q/q previously). And the rebound in Q3 was a bit stronger (16.0% q/q vs. 15.5% q/q). But none of this changes the big picture that in Q3 the economy was still some 8.6% smaller than in Q4 2019. And a sharp fall in GDP in November, perhaps of up to 8% m/m due to the second lockdown and the ongoing severe COVID-19 restrictions could keep GDP more than 14% below its pre-crisis levels, until the rollout of vaccines significantly reduces the need for those restrictions.
  • Looking at the Q3 detail, perhaps the most notable upward revision to the Q3 breakdown was in government consumption (10.4% q/q compared to 7.8% q/q previously). But there were also upward revisions to consumer spending (from 18.3% q/q to 19.5% q/q) and business investment (from 8.8% q/q to 9.4% q/q).) Providing a partial offset, the sharp downward revision to export growth (from 5.1% q/q to -0.4% q/q) meant that net trade is now thought to have subtracted 3.5ppts from Q3 GDP (2.1ppts previously). (See Table 1.)
  • As a result, the current account deficit widened from an upwardly revised £11.6bn (2.5% of GDP) in Q2 to £11.9bn (2.9% of GDP) in Q3 (consensus £13bn). And if vaccines fire up the recovery later in 2021, then the current account deficit may grow a bit further, as imports climb by more than exports.
  • Of course, Q3 is old news. And the possibility that the COVID-19 restrictions are extended and broadened in the coming months means that the risks to our Q1 GDP forecast (+1.0% q/q) are weighted heavily to the downside. (See here.) Admittedly, the saving rate dropped from 27.4% in Q2 to 16.9% in Q3, as the 19.6% q/q jump in nominal consumption far outstripped growth in real household disposable income of 4.9% q/q. Even so, it remains far above its long-run average of 8.0%, suggesting there is plenty of scope for household spending, and GDP, to rebound strongly once the restrictions are lifted. (See Chart 1.)

Chart 1: Household Saving Ratio (% of Disposable Income)

Sources: Refinitiv, Capital Economics

Table 1: GDP by Expenditure (Components of GDP, % q/q Unless Stated)

Household Spending

Government Spending

Fix. Capital Formation

Stockbuilding (Cont. to Growth)

Domestic Demand




GDP (% y/y)

Q4 19










Q1 20










Q2 20










Q3 20










Source: Refinitiv

Ruth Gregory, Senior UK Economist, +44 (0)7747 466 451, ruth.gregory@capitaleconomics.com