Quarterly sector accounts, UK: July to September 2019

• In Quarter 3 (July to Sept) 2019, UK net borrowing from the rest of the world decreased to 2.9% of gross domestic product (GDP) compared with 4.4% of GDP in Quarter 2 (Apr to June) 2019.

• In the latest quarter, households decreased their net lending position; corporations and non-profit institutions serving households (NPISH) experienced decreases in their net borrowing positions, partially offset by an increase in government net borrowing.

• The recent economic experience of households is that they were only net borrowers in Quarter 1 (Jan to Mar) 2017; they returned to net lending from Quarter 2 2017.

• The households' saving ratio decreased to 5.4% in Quarter 3 2019, compared with 6.0% in the previous quarter, as growth of household expenditure outpaced a subdued increase in household income.

• In Quarter 3 2019, private non-financial corporations saw a fall in their net borrowing position to 0.3% of GDP, which sees PNFCs decrease their net borrowing for the second consecutive quarter.

This bulletin includes new data for the latest available quarter, Quarter 3 (July to Sept) 2019 and revisions to data from Quarter 1 (Jan to Mar) 2018.

This bulletin follows the National Accounts Revisions Policy.

The alternative measures of households' income and saving

This release now incorporates the alternative measures of real households' disposable income and saving. This decision was made as a result of growing user interest in the Alternative measures of households' income and saving experimental statistics since their launch in August 2015.

In effect, the underlying data has been moved into the Households chapter (Chapter 6) of the UK Economic Accounts and the accompanying analysis onto this bulletin. They are both released on the same day. Previously, the alternative measures of real household disposable income and households' saving ratio were released roughly a week later.

We hope users find this timelier analysis of households' financial situation useful and helpful, and we continue to welcome feedback by email at sector.accounts@ons.gov.uk.

Understanding the sector and financial accounts

This bulletin presents analysis on UK aggregate data for the main economic indicators and summary estimates from the institutional sectors of the UK economy that are presented in the UK Economic Accounts (UKEA) dataset:

• public corporations

• private non-financial corporations

• financial corporations

• households

• non-profit institutions serving households (NPISH)

• central government

• local government

• rest of the world

This bulletin uses data from the UKEA and it provides detailed estimates of national product, income and expenditure, UK sector, non-financial and financial accounts, and UK Balance of Payments. These accounts are the underlying data that produce a single estimate of gross domestic product (GDP) using income, production and expenditure data.

Further information on the calculation of some of our main economic indicators can be found in the Quality and methodology section of this bulletin.

Estimates within this release

All data within this bulletin are estimated in current prices (also called nominal prices), except for real household disposable income, which is estimated in chained volume terms.

Current price series are expressed in terms of the prices during the time period being estimated. These describe the prices recorded at the time of production or consumption and include the effect of price inflation over time. Chained volume series (also known as real terms) have had the effects of inflation removed.

All figures given in this bulletin are adjusted for seasonality, unless the financial accounts are under discussion or otherwise stated. Seasonal adjustment removes seasonal or calendar effects from data to enable more meaningful comparisons over time.

The Population estimates for the UK, England and Wales, Scotland and Northern Ireland used in this release are those published on 26 June 2019.

The UK was a net borrower from the rest of the world in Quarter 3 (July to Sept) 2019, with net borrowing at 2.9% of gross domestic product (GDP); down from 4.4% in the previous quarter (Figure 1). This means that the UK spent and invested more than it received in incomes, suggesting a need to sell off assets or build up further liabilities. It is the 84th consecutive quarter starting in Quarter 4 (Oct to Dec) 1998 in which the UK has been a net borrower.

Despite overall reductions in the annual net borrowing position of general government in the last decade, other UK sectors have experienced a movement in the opposite direction over the same period (Figure 2). Private non-financial corporations returned to being annual net borrowers in 2013, after being net borrowers only once (2007) during the 10 years before that. Since 2010, the trend for households has been to decrease their annual net lending position.

As a result, UK net borrowing from the rest of the world has been 4% of GDP (or higher) in five of the last six years (since 2013). Before 2013, the UK had only experienced a net borrowing position greater than 4% of GDP on one occasion (1989) since records began in 1987.

Households

The recent economic experience of households is that they were only net borrowers in Quarter 1 (Jan to Mar) 2017. They returned to net lending from Quarter 2 (Apr to June) 2017.

Quarter 3 2019 was the 10th consecutive quarter in which households were net lenders in the non-financial account; a trend that began in Quarter 2 2017 (Figure 3).

Between Quarter 1 1997 and Quarter 1 2016, households experienced an average net lending position of 2.5% of GDP. Since Quarter 2 2016 to date, households have seen a much lower average net lending position of 0.4% of GDP.

In the latest quarter, households experienced a net lending position of 0.3% of GDP; a decrease from 0.9% of GDP in the previous quarter. The main reason for this decrease in net lending was a rise in household final expenditure of £2.4 billion driven by a number of products including increased spending on eating out, offset by falls in spending on tourism and gas.

Also providing a significant contribution to the fall in households' net lending in the latest quarter was a rise in the taxes on income and wealth paid by households. The £1.7 billion increase in the latest quarter was driven by higher taxes paid to central government. Increases were seen in Pay As You Earn (PAYE), self-employment and Capital Gains Tax. Users should be aware that self-employment and Capital Gains Tax are currently recorded on a cash basis in the national accounts.

Offsetting increases in households' expenditure and taxes on income was an increase in wages and salaries of £1.7 billion. This smaller increase in wages and salaries, when compared with the same quarter a year ago, reflects recent labour market data showing that the UK employment rate was estimated at 76.0% in Quarter 3 2019, 0.1 percentage points lower than the previous quarter. At the same time, growth in average weekly earnings for employees (including bonuses) slowed compared with Quarter 2 2019. To further explore the latest labour market statistics, see Labour market overview, UK: November 2019.

Despite the recent economic experience of households showing that they are now predominantly net lenders, from Quarter 2 2016, we still see a significant fall in the amount of lending to other sectors that households can make.

Figure 3 captures the deterioration of households' finances that began in Quarter 2 2016. Households saw a squeeze in their incomes throughout 2016 as gross disposable income grew at its weakest rate (1.8%) since 2010, while household spending on all goods and services grew at its fastest (5.4%) since 1998 -- partly because of inflationary pressures pushing up the price of the same basket of goods and services.

As a result of this, between Quarter 2 2016 and Quarter 3 2019, households' surplus income after expenditure shifted the sector near to a borrowing position.

Revisions to households' net lending or borrowing

This bulletin includes revisions to data from Quarter 1 2018 in line with the National Accounts Revisions Policy.

Households' net lending has been revised down in all six quarters open for revision with the largest revision occurring in Quarter 1 2019 of negative £4.5 billion.

The main cause of downward revisions throughout the majority of quarters open to revision has been the methodological improvements to mixed income estimates. Upward revisions to households' final consumption expenditure and gross fixed capital formation have also contributed to the downward revision to households' net lending throughout.

See Appendix A for a chart summary on revisions to households' lending or borrowing (B.9n) and the sub-components of B.9n between Quarter 1 2018 and Quarter 2 2019.

Financial corporations

In the latest quarter, financial corporations significantly improved on their net borrowing position, which saw it fall to 0.3% of GDP after being a major contributor to the UK borrowing position in the previous quarter at 1.5%.

In Quarter 3 2019, financial corporations saw a fall in their quarterly net borrowing position to £1.8 billion following net borrowing of £8.4 billion in Quarter 2 2019. This was predominantly driven by an increase in net property income of £4.9 billion and a fall in social benefits other than social transfers in kind payment of £1.4 billion, partially offset by a rise in the adjustment for pension entitlements of £0.9 billion and a fall in social contributions received of £0.5 billion.

In 2018, financial corporations saw a downward revision to their net borrowing position to £16.9 billion, previously published as £19.0 billion, which was caused by an upward revision to net property income of £2.0 billion and a downward revision of the adjustment for pension entitlements of £1.8 billion. These were partially offset by an upward revision to social benefits other than social transfers in kind paid of £1.1 billion and a downward revision of £1.0 billion to gross capital formation.

In the financial account, net borrowing fell to £11.1 billion in Quarter 3 2019 from £18.8 billion in Quarter 2 2019 following rises in loans issued of £88.6 billion, derivatives and employee stock options of £23.1 billion, and net currency and deposits of £13.8 billion. However, this was offset by a fall in net debt securities of £75.3 billion and in net equity and investment fund shares of £41.4 billion.

Local government

There was a decrease in local government's net borrowing position to 0.2% of GDP in Quarter 3 2019, compared with 0.5% in the previous quarter. Driving this movement was a £1.7 billion rise in net current transfers between general government and a £0.6 billion rise in net investment grants. These were partially offset by a rise in subsidies on production of £0.5 billion.

In the financial account, local government saw a switch to borrowing of £1.3 billion in the latest quarter following net lending of £1.8 billion in Quarter 2 2019. The main driver of this switch was a fall in net loans, and currency and deposits of £1.7 billion and £1.4 billion respectively. These were partially offset by a rise in net debt securities of £0.6 billion and a rise in assets of equity and investment fund shares of £0.3 billion.

Further analysis on local government can be found in Public sector finances, UK: November 2019.

Central government

Central government's net borrowing position increased to 2.2% of GDP in Quarter 3 2019, compared with 1.8% in the previous quarter. The main cause of this movement was a rise in net current transfers between general government of £1.7 billion and a fall in net property income of £1.1 billion, partially offset by a rise in taxes on income and wealth of £1.7 billion.

In the financial account, central government saw a reduction in their net borrowing to £12.1 billion following net borrowing of £24.6 billion in Quarter 2 2019. The main driver of this significant improvement was the rise in net debt securities of £19.9 billion, mainly caused by the reduction in long-term central government securities. This was partially offset by a fall in net loans of £5.2 billion.

Further analysis on central government can be found in Public sector finances, UK: November 2019.

Private non-financial corporations

Private non-financial corporations (PNFCs) saw their net borrowing position fall to 0.3% of GDP in Quarter 3 2019, an improvement in their net borrowing position for the second consecutive quarter.

In the latest quarter, PNFCs saw their net borrowing position decrease to £1.5 billion following the Quarter 2 2019 net borrowing position of £5.8 billion, this improvement was predominantly driven by a fall in gross capital formation of £8.5 billion. This is in line with recent evidence that inventories held by UK companies increased in the first quarter of 2019 as stocks were built up and subsequently decreased in the second and third quarter of the year as stocks were run down. This was partially offset by a fall in PNFCs net property income of £5.6 billion as the sector paid out increased dividends and re-invested earnings on foreign direct investment.

PNFCs saw the net borrowing in their financial account increase to £16.9 billion in Quarter 3 2019 from £4.0 billion in Quarter 2 2019, this was mainly driven by a fall in net loans of £13.3 billion and a fall in net equity and investment shares of £12.7 billion. These were offset by a rise in net other accounts payable or receivable of £12.7 billion.

Non-profit institutions serving households (NPISH)

The NPISH sector (which includes, for example, charities, universities and religious organisations) is by far the smallest private sector, but it is nevertheless an important one because of the social benefits it offers UK society.

In Quarter 3 2019, NPISH saw their net borrowing position decrease to £48.0 million from £0.3 billion in Quarter 2 (Apr to June) 2019; as a percentage of GDP it is now 0.0%, changed from negative 0.1% in the previous quarter.

UK activity with the rest of the world

The UK’s current and capital account deficit with the rest of the world (that is, its net borrowing position) narrowed in the latest quarter to 2.9% of GDP; down from 4.4% in Quarter 2 2019. This is the lowest in percentage of GDP terms since Quarter 1 2012 when a deficit equivalent to 2.6% of GDP was recorded.

The decrease in the latest quarter is due to the narrowing of the UK’s trade deficit, which decreased by £10.5 billion to £0.4 billion or 0.1% of GDP, the lowest since Quarter 1 1998 when a deficit of £0.2 billion was recorded. The narrowing of the Trade deficit was due to exports increasing more than imports with both exports of goods and services reaching record high levels in Quarter 3 2019 of £94.1 billion and £81.1 billion respectively. Looking at individual accounts, trade in goods deficit narrowed by £5.4 billion to £29.2 billion and the trade in services surplus widened by £5.1 billion to £28.8 billion.

For further analysis on the UK’s economic activity with the rest of the world, please refer to the Balance of payments bulletin.

Real household disposable income (RHDI) fell by 0.5% in the latest quarter, this means that after considering price rises experienced by households, incomes after tax fell by 0.5% in Quarter 3 (July to Sept) 2019, decreasing from the 0.9% growth households saw in Quarter 2 (Apr to June) 2019.

A fall in nominal gross disposable household income (GDHI) contributed negative 0.1 percentage points to the RHDI fall this quarter, with a negative contribution from inflation of 0.4 percentage points, as Figure 4 shows. Please note: the sum of contributions may not add to RHDI growth because of rounding.

The fall in GDHI is mainly attributed to a rise in the taxes on income and wealth paid by households. The £1.7 billion increase in the latest quarter was driven by higher taxes paid to central government. Increases were seen in Pay As You Earn (PAYE), self-employment and Capital Gains Taxes. Users should be aware that self-employment and Capital Gains Tax are currently recorded on a cash basis in the national accounts.

Offsetting the increase in taxes on income was an increase in wages and salaries also of £1.7 billion. This smaller increase in wages and salaries, when compared with the same quarter a year ago, reflects recent labour market data showing that the UK employment rate was estimated at 76.0% in Quarter 3 2019, 0.1 percentage points lower than the previous quarter. At the same time, growth in average weekly earnings for employees (including bonuses) slowed compared with Quarter 2 2019. To further explore the latest labour market statistics, see Labour market overview, UK: November 2019.

Growth in the household implied deflator in Quarter 3 2019 increased to 0.4%, compared with 0.3% growth seen in Quarter 2 2019. The higher growth reflects the higher cost of UK residents' spending when abroad and increases in the cost of eating out in the UK.

Revisions to real household disposable income

This bulletin includes revisions to data from Quarter 1 (Jan to Mar) 2018 in line with the National Accounts Revisions Policy.

Real household disposable income growth has been revised downwards by negative 0.1 percentage points on average across the six quarters open for revision, with the largest revision occurring in Quarter 1 (Jan to Mar) 2019 of negative 0.6 percentage points.

The main causes of revision in Quarter 1 2019 are later data improving estimates of households' property income and an upward revision to the households' implied deflator, a measure of the inflationary experiences of the sector.

See Appendix A for a chart summary on revisions to RHDI growth and for revisions to the sub-components of GDHI up to Quarter 1 2019.

Alternative measure of real household disposable income (experimental)

The alternative (and experimental) measure of RHDI removes imputed transactions from real household disposable income to better represent the economic experience of UK households. In other words, it captures the immediately accessible and directly observed "cash" available to households to spend or save at that given time point if they so wished to.Please note: the measure does not move RHDI from an accrual basis to cash basis accounting.

Deeper detail on methodology can be found in the Alternative measures of UK households' income and saving: April to June 2018 article.

In this cash-based approach, real household disposable income (RHDI) is estimated to have decreased by 0.8% in Quarter 3 2019, compared with the previous quarter. This is a larger fall in growth in comparison with the national accounts basis, as Figure 5 shows.

In the latest quarter, it is also worth noting that the level of RHDI on a cash basis is approximately 19% lower than the level of RHDI on a national accounts basis. That is a difference equivalent to 11% of gross domestic product (GDP), meaning that households have 11% of GDP less to spend or save when we remove incomes not immediately accessible or directly observed.

Per head, cash-based RHDI stood at £4,122 in the latest quarter, down 0.9% from the previous quarter.

Throughout 2018, gross operating surplus (which is made up of imputed rentals -- that is, what households would pay themselves if they were to rent their own property to themselves) had been the main driver of the difference as Figure 6 shows. In Quarter 1 and Quarter 2 2019, the removal of non-life insurance claims from the national accounts measure of GDHI also contributed to the difference.

In the latest quarter, the removal of net financial intermediation services indirectly measured (FISIM) has been the main driver of the stronger negative growth seen in the cash-basis RHDI. This is partially offset by a positive contribution from the removal of gross operating surplus.

There are six transactions that explain the differences between GDHI on a cash basis and a national accounts basis. See Table 3 in Appendix B for a list of transactions removed from the national accounts measure of RHDI to calculate the cash-based RHDI. A cash-based deflator is also applied to cash-based GDHI to remove the effect of price changes experienced by households to calculate real household disposable income on a cash basis.

Revisions to the alternative measure of real household disposable income (experimental)

The main contributors to revisions to the alternative measure of real household disposable income are the same as those driving revisions to the national accounts measure.

The level of the households' saving ratio has been revised upwards from 2006 following Blue Book 2019 methodological and data improvements. However, households continue to save a far lower proportion of their disposable incomes from Quarter 2 (Apr to June) 2016. Figure 7 shows that most recently the households' saving ratio decreased to 5.4% in Quarter 3 (July to Sept) 2019, compared with 6.0% in the previous quarter as growth of household expenditure outpaced a subdued increase in household income.

The saving ratio captures the income households have available to save as a proportion of their total available resources (that is, current and deferred incomes). Figure 8 breaks down how much of that available income was set aside as pension savings, and how much more income is available to be used for other forms of savings (for example, investment in financial and non-financial assets).

Figure 8 shows that the decrease in the saving ratio in Quarter 3 2019 was because of households experiencing a fall in non-pension income available for saving whilst pension saving marginally increased. Non-pension income fell as final consumption expenditure grew, whilst gross disposable income fell for the second time in three quarters.

In Quarter 3 2019 (Jul to Sep), households’ expenditure rose by £2.4 billion (0.7%). The contributors to this included a £0.6 billion increase in expenditure on eating out in restaurants and cafes, partly offset by a £0.6 billion fall in in net tourism as expenditure abroad by UK residents fell and foreign tourist expenditure in the UK rose. Further detail on households’ final consumption expenditure, including a breakdown of households’ spending by product, can be found in the Consumer trends bulletin.

Households' pension savings (income set aside in pension plus any change in the value of pension entitlements) rose by 2.7 percentage points in the latest quarter. Since Quarter 1 (Jan to Mar) 2017, pensions savings have contributed 2.7 percentage points to the saving ratio, on average. In the decade to 2017 (that is, 2007 to 2016), it contributed 5.2 percentage points on average. In the decade to 2007 (that is, 1997 to 2006), it contributed 6.5 percentage points on average, signalling a gradual fall in households' pension savings over time.

Households' non-pension savings (income available to save, other than pension) also rose by 2.7 percentage points in the latest quarter. Since Quarter 1 2017, non-pension savings contributed an average of 2.9 percentage points to the quarterly saving ratio. In the decade to 2017 (that is, 2007 to 2016), it contributed 4.1 percentage points on average, higher than the decade to 2007 (that is, 1997 to 2006) where it contributed 0.9 percentage points on average.

Revisions to the saving ratio

This bulletin includes revisions to data from Quarter 1 2018 in line with the National Accounts Revisions Policy.

The saving ratio has been revised downwards in all six quarters open for revision by an average of 0.5 percentage points per quarter, with the largest revision occurring in Quarter 1 2019 of negative 0.9 percentage points.

As shown in Table 1, the main cause of downward revisions throughout the majority of quarters open to revision has been the methodological improvements to mixed income estimates. Upward revisions to households' final consumption expenditure throughout the most recent periods have also contributed to the downward revision to the saving throughout.

Alternative measure of households' saving ratio (experimental)

This alternative (and experimental) measure removes imputed transactions from the households' saving ratio to better represent the economic experience of UK households. In other words, it captures the immediately accessible and directly observed "cash" available to households to spend or save at that given time point if they so wished to. Please note: the measure does not move households' saving ratio from an accrual basis to cash basis accounting.

Deeper detail on methodology can be found in the Alternative measures of UK households' income and saving: April to June 2018 article.

As Figure 9 shows, the cash-basis saving ratio was 2.1% in Quarter 3 2019, down 0.9 percentage points from 3.0% in the previous quarter, in line with the decrease in the national accounts saving ratio.

In the latest quarter, the cash-basis saving ratio fell 0.9 percentage points, a larger fall than the 0.6 percentage points drop seen in the national accounts savings ratio. Driving the difference in the value (£ billion) between the national accounts savings ratio and the cash-basis saving ratio is the removal of the adjustment for the change in pension entitlements, as shown in Figure 10. The removal of the adjustment for the change in pension entitlements effectively returns household saving to a view of saving in the current period as opposed to a recognition of all future saving.

The main contributors to revisions to the alternative measure of households' saving ratio are the same as those driving revisions to the national accounts measure.

A summary of revisions in the quarter open to revisions (Quarter 1 (Jan to Mar) 2018 to Quarter 2 (Apr to June) 2019) can be seen in Table 2.

A detailed breakdown of the components of gross domestic product (GDP) can be found in the Quarterly national accounts bulletin.

The balance of payments summarises the economic transactions of the UK with the rest of the world. Further detail relating to the rest of the world sector can be found in the Balance of payments bulletin.

Further detail on households' final consumption expenditure, including a breakdown of households' spending by product, can be found in the Consumer trends bulletin.

International comparisons

In Quarterly sector accounts, UK: January to March 2018, published on 29 June 2018, we published an international comparison of UK households' net borrowing as a percentage of gross domestic product (GDP). UK households are not alone in tending toward a net borrowing position as most G7 countries saw a similar trend. However, the UK's experience has been more dramatic as households became net borrowers in 2017 for the first time in nearly 30 years.

In Quarterly sector accounts, UK: July to September 2017, published on 22 December 2017, we published an international comparison of the UK saving ratio. Among the G7 countries, the UK is not alone in having a declining saving ratio. Also, in our Quarterly sector accounts, UK: April to June 2017 bulletin we noted the low UK saving ratio has become more comparable with the United States, whereas the saving ratio for the euro area countries was higher.

Insurance and the national accounts

On 31 March 2017, we included details on How insurance and pensions data affect the households' saving ratio and GDP to help explain the logic and impact of these transactions. These effects in the national accounts are relatively technical in nature and are not necessarily observed by households.

Flow of funds

On 17 November 2017, we published UK flow of funds to help users visualise the from-whom-to-whom estimates by using Sankey diagrams and heatmaps to show the counterparty relationships between institutional sectors. Since the recent global financial crisis, the international community has had an increased focus on the analysis of financial stability in aiming to better understand the build-up of financial risk in different sectors of the economy. This is particularly important for countries like the UK that have a significant financial sector. Considering the growing demand for improvements to data to support that analysis, this important area was identified internationally to develop coverage in the flow of funds.

Further analysis on households

To further investigate what households are doing with the amount of money they have available to save, Tables 6.2.7 and 6.2.8 of the UK Economic Accounts are a good source to use. Table 6.2.7 shows the accumulation of capital investment and includes expenditure on long-term non-financial assets also known as gross fixed capital formation (for example, expenditure on dwellings, transport equipment, and intellectual property products). In addition, Table 6.2.8 sets out households' financial activity in a given time period. This includes the accumulation of financial assets (for example, deposits, shares, insurance and pension schemes) and the accumulation of debt (for example, long- and short-term loans).

Withdrawal of series

Gross value added (GVA) at factor cost

Within the UK Economic Accounts (UKEA) we previously published four series presenting GVA at factor cost (identifiers KGN7, KGN6, KGN5 and YBHH). As announced in the March Quarterly sector accounts release, we have now withdrawn these series from publication. This is because GVA at factor cost is not recognised with the UN System of National Accounts 2008 (SNA08) framework, therefore we have concerns over the methodology used to calculate these estimates.

National Statistics status

On 20 March 2018, the UK Statistics Authority published a letter confirming the designation of quarterly sector accounts statistics as National Statistics. National Statistics means that official statistics meet the highest standards of trustworthiness, quality and value. The letter praised the richer analysis on the households' sector and the improvements in communicating technical concepts to a less technical audience.

We are keen to continue this type of analysis and we welcome feedback and suggestions for additional content for the bulletin or supplementary pieces.

Reliability

Estimates for the most recent quarters are provisional and are subject to revision in the light of updated source information. Our revisions to economic statistics page contains articles on revisions and revisions policies.

Revisions to data provide one indication of the reliability of main indicators. Revisions triangles were published for the households and non-profit institutions serving households saving ratio. However, following the separation of the households and non-profit institutions serving households (NPISH) sectors in September 2017, we have ceased production of the revision triangles for the households and NPISH saving ratio. In due course, we will reintroduce the revision triangle for the households-only saving ratio as and when meaningful analysis on revisions can be done.

Comparability

Data in this bulletin are internationally comparable. The UK National Accounts are compiled in accordance with the European System of Accounts 2010: ESA 2010, under EU law and in common with all other members of the European Statistical System. ESA 2010 is itself consistent with the standards set out in the United Nations System of National Accounts 2008: SNA 2008.

An explanation of the sectors and transactions described in this bulletin can be found in Chapter 2 of the ESA 2010 manual.

Methodology

This section summarises the methodology behind some of our main economic indicators: real household disposable income, households' saving ratio and net lending or borrowing positions.

Real household disposable income (RHDI) explained

Household income is measured in two ways: in current prices (also called nominal prices) and in real terms, where the effect of price inflation is removed.

Gross disposable household income (GDHI) is the estimate of the total amount of income that households have available to either spend, save or invest. It includes income received from wages (and the self-employed), social benefits, pensions and net property income (that is, earnings from interest on savings and dividends from shares) less taxes on income and wealth. These are all given in current prices.

Therefore, GDHI tells us how much income households had to spend, save or invest in the time period being measured once taxes on income and wealth had been paid.

Adjusting GDHI to remove the effects of inflation gives another measure of disposable income called real household disposable income (RHDI). This is a measure of the real purchasing power of households' income, in terms of the physical quantity of goods and services they would be able to purchase if prices remained constant over time. Further information on this calculation can be found in our Quality and Methodology Information.

The households' saving ratio explained

The saving ratio estimates the amount of money households have available to save (gross saving) as a percentage of their gross disposable income plus pension accumulations (total available resources).

Gross saving is the difference between households' total available resources (that is, GDHI plus pension accumulations) and household expenditure on all goods and services for consumption.

The saving ratio can be volatile and is sensitive to even relatively small movements in its components, particularly on a quarterly basis. This is because gross saving is a relatively small difference between two large numbers. It is therefore often revised at successive publications when there are revisions to data.

The saving ratio may be considered an indicator of households' economic confidence as well as an indicator of households' financial conditions.

A higher saving ratio may be the result of an increase in income, a decrease in expenditure, or some combination of the two. A rise in the saving ratio may be an indication that households are acting more cautiously by spending less. Conversely, a fall in the saving ratio may be an indication that households are more confident and spending more. Other factors such as interest rates and inflation should also be considered when interpreting the households' saving ratio.

Net lending (+) or borrowing (-) positions explained

The net lending or borrowing of a sector represents the net resources that the sector makes available to the rest of the economy. It does not necessarily refer to actual lending or borrowing in the normal sense, rather, it means that either a sector has money left over after its spending and investment in a given period (net lending), or it has spent and invested more than it received and has a need for financing (net borrowing), which may be covered by borrowing, issuing shares or bonds, or by drawing on reserves.

The net lending or borrowing position is determined by gross saving (that is, the balance between gross disposable income and final consumption expenditure) and is reduced or increased by the balance of capital transfers and the change in non-financial assets. This final position is called the net lending (if positive) or borrowing (if negative) position.

In summary, if actual investment is lower than the amount available for investment, the balance will be positive and represents net lending. Alternatively, if actual investment is higher than the amount available for investment, net borrowing is represented.

Note that, theoretically, the sum of net lending or borrowing positions of UK sectors must be offset by that of the rest of the world. However, this is only currently true up to 2016 data. From 2017 onwards, unbalanced supply and use tables (SUT) in the compilation of gross domestic product (GDP) are unbalanced and it can take approximately 18 months after the end of the latest balanced year (currently 2016) for balanced SUTs to become available.

Quality and Methodology Information report

The Quarterly sector accounts Quality and Methodology Information reportcontains important information on:

• the strengths and limitations of the data and how it compares with related data

• uses and users of the data

• how the output was created

• the quality of the output including the accuracy of the data

The Quarterly sector accounts and the UK Economic Accounts are published at quarterly, pre-announced intervals alongside the Quarterly national accounts and Quarterly balance of payments statistical bulletins.

Households' debt to income ratio

In both the Quarterly sector accounts, UK: July to September 2017 and Quarterly sector accounts, UK: April to June 2017 bulletins we introduced analysis on the households' debt to income ratio and the type of household accumulated debt (that is, mortgages versus unsecured debt). The households' debt to income ratio is now included as an appendix to this release.

The ratio increased in 2016 and 2017. There was a slowdown in this growth from Quarter 4 (Oct to Dec) 2017. The households' debt to income ratio has remained broadly flat at around 126% since Quarter 1 2018. In Quarter 3 (July to Sept) 2019, it stands at 126.6%, an increase from 126.0% in Quarter 2 (Apr to June) 2019. This means that in the latest quarter, households have approximately £1.27 debt for every £1 of income they have earned over the past year.

The author, David Matthewson, would like to express his thanks to the Sector and Financial Accounts Team at the Office for National Statistics for their contributions to this work.