UK Growth Hits 0.7% But Savings Slump Raises Red Flags for Households

Trade pact with US kicks in as MPs question value of Lifetime ISAs for vulnerable savers

The UK economy posted a 0.7% growth in the first quarter of 2025—its strongest performance since late 2021—but a sharp drop in household savings and fresh political scrutiny of financial products are clouding the picture.

New data released Monday confirmed the GDP figure previously estimated by the Office for National Statistics. But buried in the same release was a worrying signal: the household saving ratio—the share of disposable income that households are socking away—slipped to 7.3%, down from 8.2% in Q4 2024.

It’s not catastrophic. But it sure isn’t comforting.

Trade deal with US begins with tariff cuts for key UK sectors

Alongside the economic figures came a big-ticket announcement: the UK-US trade agreement quietly came into force this morning, delivering long-awaited tariff cuts that will benefit British carmakers, aerospace firms, and whisky producers. It’s the first major trade pact of Donald Trump’s second term.

The Department for Business and Trade said that:

• UK electric vehicle manufacturers will now save up to 8.5% on tariffs when exporting to the US.

• The aerospace sector could see yearly savings of over £90 million on aircraft components.

• Scotch whisky tariffs—reimposed during the earlier Trump administration—are now back to zero.

Prime Minister Keir Starmer hailed the deal as a “solid step forward for British industry,” while President Trump struck a typically terse tone, calling it “finally a fair deal.”

But critics pointed out that the agreement focuses more on tariff tweaks than deep regulatory alignment. And it doesn’t cover UK financial services—a sticking point that’s still being ironed out.

MPs slam Lifetime ISAs for risking bad decisions among vulnerable savers

Also grabbing attention this morning: a sharply worded report from the Treasury select committee that took aim at Lifetime ISAs.

LISAs were introduced in 2017 under then-chancellor George Osborne, giving savers under 40 the option to put away up to £4,000 per year—with a 25% top-up from the government—either for a first home or retirement.

But MPs say this two-in-one approach may be doing more harm than good.

“Frankly, it’s confusing,” one committee member told reporters. “People are being pulled between two very different goals—buying a home and retiring safely—without real guidance on which takes priority.”

Here’s what the committee flagged:

• Lisa savings count against benefit eligibility for Universal Credit or housing support.

• Many savers weren’t informed of this trade-off at the point of sale.

• Savers who use LISAs for retirement are often stuck in low-return cash products, since investment options are limited.

A one-sentence paragraph can sometimes say more than a whole speech.

The committee’s report warned that thousands of savers may have been “mis-sold” the product, particularly low-income workers or students trying to access government benefits.

Savings rate dips even as wages rise—why?

So what’s going on with the falling savings rate?

Wages have been rising in real terms since late 2024, and inflation has cooled significantly. So you’d think people would be stashing more, right?

Not quite.

One explanation lies in pent-up spending. After two years of squeezed consumption, households are taking holidays again, upgrading appliances, and eating out more frequently. According to Barclaycard data, discretionary spending rose 5.4% year-on-year in Q1.

Then there’s the mortgage time bomb.

Fixed-rate mortgage deals signed during the ultra-low rate era are now expiring, and households are being hit with monthly increases of £200–£500. That eats into any spare cash.

And don’t forget the quieter drag: student loan repayments. The government’s new repayment threshold changes kicked in this year, pulling more graduates into monthly deductions even at modest incomes.

One sentence, one sigh: the costs just keep piling on.

Entry-level jobs plunge since AI boom began

The broader labour market, meanwhile, is sending mixed signals.

While unemployment remains low, a new study from the Institute for Public Policy Research (IPPR) published Monday shows that entry-level job postings in the UK have dropped 23% since the launch of ChatGPT in late 2022.

Sectors like publishing, legal services, and marketing have seen the steepest declines. Many firms say they’re using AI to automate junior tasks—drafting, formatting, even early-stage legal reviews.

In short: the ladder’s still there, but the first few rungs are missing.

According to IPPR, the number of full-time paid internships in the media sector shrank by nearly 40% over the past 18 months.

Here’s a quick look at sector-specific changes:

WH Smith sells off high street arm at steep discount

Another notable business update: WH Smith has sold off its high street division for £180 million—well below what analysts had expected. The company will now focus entirely on its profitable travel business, which includes airport and train station shops.

Investors appeared unfazed. Shares rose 3.2% in early trading.

Still, the fire-sale price underscores how tough the UK high street has become for legacy retailers. Foot traffic hasn’t returned to pre-COVID levels, and online shopping keeps eating market share.

The buyer, Hilco Capital, is known for flipping struggling chains. Whether they can revive WH Smith’s high street arm is anyone’s guess.