Here is the good news. We are 0.9 per cent better off than a year ago.  That’s after allowing for inflation and tax.  So that’s all right then; sure, the economy is slowing down but, even so, we still got better off.

It is just that when you drill into the latest data from the Office for National Statistics, all of a sudden the picture looks a lot less rosy.  And we are left questioning the data.

Latest estimates out at the end of last week suggest the UK economy expanded by a mere 0.3 per cent in the first quarter that is barely above recession pace. 

Furthermore, and this is a little odd, our savings ratio, which is already far too low, fell to just 1.1 per cent in the first quarter. The ONS have never recorded this ratio so low. Never, not since records began in 1959. 

And from beyond the Office for National Statistics, other data out at the end of last week paints an even more bleak picture.The UK’s Consumer Confidence index from GfK NOP fell to its lowest level since 1990, while Hometrack recorded the biggest monthly fall in house prices in June it has yet seen.

Actually, though, it does kind of make sense. Recently the ONS also revealed data to suggest the High Street enjoyed its biggest ever year-on-year rise since 1986. This may seem odd, but put it all together, and the jigsaw pieces reveal a picture.

The ONS has salaries rising by 4.8 per cent in the first quarter of this year compared to last. But it also had our taxes going up too, from 33.5, to 34.5 per cent of our salaries.  As for our disposable income, well that went up by 3.4 per cent; deduct from that a 2.5 per cent inflation rate, and we are left with the real change in our disposable income of 0.9 per cent.

It may not be much of an improvement, but at least it is an improvement, and we should all be celebrating that. 

It is just that the retail price index is typically a full percentage point higher, so actually, if you adjust disposable income for retail price inflation, we are slightly worse off.

Some of us are more adversely affected by rising petrol prices, others by the rising price of food.  So while the average person may be marginally worse off, some people, for example those who have a longish car journey into work every day, will be a lot worse off.

Combine this with other data from the ONS released a few weeks ago showing unemployment is up, and you can see why GDP growth was so tiny.

But why, then, did the High Street enjoy such a booming May?  Or at least, booming according to the ONS.

Surely the only possible explanation for this lies in the falling savings ratio. 

But that, though, opens up a can of worms

The UK saving ratio has long been far too low.  It is like that in the US too, but in our main economic contemporaries in Europe, countries such as France and Germany, saving is much higher.

Earlier this year, Martin Weale, the Director of the National Institute of Economic and Social Research, said: In France, Spain and Italy, wealth and saving are close to adequate. Consumption needs to fall no more than 2 per cent  in France, Italy and Spain. But the United Kingdom has a long history of low saving and needs to cut consumption by 8.5 per cent if today’s adults are to avoid imposing a burden on future generations. The total wealth shortfall in the United Kingdom is over £1400bn, or the equivalent of about thirteen Northern Rocks.

Banks want us to save more now, of course. In its current TV ads, the Halifax tries to portray the delights of saving by transposing the words we are saving on to the tune of that famous Rod Stewart song about sailing.

Banks need us to save more, so that they have more money to lend out.  If we all were to start saving more, maybe they wouldn’t need to tap shareholders and sovereign wealth funds for so much money at the moment.

Furthermore, in times of hardship we do tend to save more.

But no, it appears that the spend-now:pay-later culture is so strong, that even the severe economic conditions we are currently going through are not enough.

In the short-term it is perhaps no bad thing.  Low savings mean high spending, mean the High Street is given surprising strength.

But in the long-term it is just not affordable.Growth based on lower savings is not sustainable.

Surely, if you cut though everything, the real cause of the current economic crisis is a savings ratio which is too low.  And yet, there is no sign of this underlying ill being cured.

Maybe, in the long-term, the only possible solution is much higher interest rates. Not now, of course, that would be economic suicide. When food and oil prices finally start to subside, then would be the time to focus policy on fixing this true underlying ill.

© Investment & Business News 2013