The UK economy grew faster than previously estimated in the final quarter of last year, but soaring inflation led to lower real household incomes, lower savings and slower spending growth, even before the war in Ukraine sent energy prices soaring.

Gross domestic product grew by 1.3% between the third and fourth quarters of last year, up from an initial reading of 1%, according to the Office for National Statistics.

Compared with the pre-pandemic fourth quarter of 2019, output fell just 0.1%, down from an earlier estimate of a 0.4% decline, meaning the economy has largely recovered from the pandemic’s blow.

The U.K.’s recovery has lagged behind the U.S. and the euro area, which surpassed pre-pandemic levels in the final quarter of 2021, although the German economy is still 1.1% below that level.

Output growth in health and social work activities was revised up to 4.3% as Covid-19 infections surged and vaccination programmes expanded. That puts government spending about 9% above pre-pandemic levels, underscoring that much of the economic rebound is due to the government’s efforts to tackle the pandemic.

In contrast, household spending rose less than previously estimated and was 1% below pre-pandemic levels. Meanwhile, real household disposable income fell 0.1%, reflecting soaring inflation.

Real, inflation-adjusted incomes fell even before consumer price expectations rose in April and fall as regulators raised energy price caps to reflect rising gas and oil prices following Russia’s invasion of Ukraine.

This means that households buy more goods and services by saving less. The household savings rate, or the average percentage of disposable income saved, fell to 6.8% in the final quarter of 2021, down from 7.5% in the previous three months and the lowest level since the pandemic began, ONS data showed.

Barret Kupelian, senior economist at consultancy PricewaterhouseCoopers, said: “These revisions mean that UK households are entering a period where living standards will suffer a huge hit, with savings buffers larger than initially expected. Be small.

“Without further government support, this could mean a much faster cut in household consumption than initially estimated,” he added.

“The pace of quarterly growth will slow as the contraction in real incomes continues to take hold,” said Paul Dales, an economist at consultancy Capital Economics. He added that the Bank of England was more problematic than weak GDP growth because of high inflation. Interest rates could be raised to 2% next year from 0.75% now.

Despite the upward revision, business investment remained 8.6% below pre-pandemic levels. Samuel Tombs, chief UK economist at consultancy Pantheon Macroeconomics, said the extremely low levels were “due to Brexit uncertainty”.

Exports were also 15.7% below their level in the last quarter of 2019. Britain’s “exports have been underperforming compared to other advanced economies since the first quarter of 2021, suggesting that Brexit is largely to blame,” Tombs said.