UK households increased savings in the first three months of the year as the latest lockdown curtailed spending in shops, bars and restaurants, raising hopes that the accumulated cash will boost the economic recovery as businesses reopen.

Data from the Office for National Statistics on Wednesday showed the household saving ratio — the average percentage of disposable income that is saved — rose from 16.1 per cent in the final three months of last year to 19.9 per cent in the first quarter.

“The elevated savings ratio reaffirms that households are emerging from the crisis with cash to fuel higher spending,” said Martin Beck, senior economic adviser to the EY Item Club.

The rise in household savings has prompted optimism for the wider economic recovery, despite a contraction in gross domestic product in the first quarter. Paul Dales, chief UK economist for Capital Economics, said the rise had surpassed expectations and increased the “potential for faster rises in GDP further ahead”.

The ratio was the second highest since the records began in 1963, just behind the figure that covered the first lockdown last year.

Meanwhile, the Bank of England expected about a tenth of the additional savings to be spent as the economy reopens.

Column chart of Average percentage of disposable income saved showing UK household saving ratio soars during lockdown

BoE data showed households’ bank deposits continued to surpass pre-crisis levels in May despite falling back from earlier in the year. At the same time, consumer borrowing figures were net for the first time since last summer, a further indication that spending had resumed.

In the first three months of the year, household spending growth was down 4.6 per cent compared with October-December, and 13.4 per cent lower than pre-pandemic levels.

The ONS data showed the UK economy contracted 1.6 per cent in the first quarter compared with the previous one, driven by education, wholesale and retail trade, and accommodation and food services industries in response to the tightening of Covid-19 restrictions at the start of the year.

The contraction in GDP was still a fraction of that recorded in the second quarter of 2020, as the UK suffered a bigger slump of more than 20 per cent, bigger than any other European economy.

Samuel Tombs, a chief economist at Pantheon Economics, said positive signals suggested the UK would probably be the “G7’s laggard for the last time in Q1”.

However, he warned that recovery could lose momentum as other countries “close the vaccination gap”, and an ageing workforce, low immigration and trade barriers imposed after Brexit held the UK economy back.

Despite being revised upwards by 1.2 percentage points in Wednesday’s figures, business investment fell 10.7 per cent in the first quarter of this year, 17.3 per cent below pre-pandemic levels, as businesses struggled with the pandemic disruption.