Household savings will fall 71% to a weekly average of £26 as the cost of living soars
Household savings are set to fall 71% from a year ago to an average of £26 a week, as inflationary pressures drastically reduce families’ ability to save money, figures show.
Households would need to earn £80 more a week before tax or spend £66 less to save at the same level as in the second quarter of last year, according to estimates from Scottish Friendly and the Center for Economics and Business Research (Cebr ) .
According to the study, household spending this month is expected to be 12% higher than the same month last year, due to the 54% increase in Ofgem’s price cap and new policies tax.
As a result, average weekly savings are expected to rise from £41 in March to £27 in April and £26 in May and June.
Household savings have soared during the pandemic and peaked in the first three months of 2021, with the average household saving £152 a week.
Savings levels have fallen every quarter since then, but are expected to recover from the third quarter of this year as inflationary pressures ease and wage growth improves.
Households are expected to save an average of £39 per week over the whole of 2022, down 56.6% from £89 per week last year.
A survey of over 2,000 UK adults as part of the study found that 72% expect rising prices to worsen their standard of living in the coming year.
Among them, 24% expect their standard of living to drop “significantly”.
The most widespread impact of the cost of living crisis is expected to be on consumer buying habits, with 50% of respondents expecting to have to change the type of goods and services they buy.
Meanwhile, 34% say they will need to change stores, almost one in five (19%) will seek new sources of income and 19% will tap into existing savings.
More than half (52%) said they had to withdraw money from their savings or investments to supplement their income in the past six months.
Some 43% borrowed money, including 21% from family and friends. Other sources include credit cards (18%), bank overdrafts (11%) and personal loans (9%).
Kevin Brown, savings specialist at Scottish Friendly, said: “Household savings are expected to fall well below pre-pandemic levels in the second quarter of this year as Britons’ take home pay declines and their expenses increase.
“The 1.25 percentage point hike in National Insurance contributions and the freezing of income tax brackets could not come at a worse time for families. This will squeeze people’s take home pay while the new energy price cap will significantly increase the energy bills of many households.
“As a result, the ability of households to save and invest will be severely reduced in the short term. Not only will people be able to put less money aside, but they may also have to rely on their existing savings to maintain their normal standard of living.
“Eventually inflation will come down and wages will rise, allowing more households to reinvest their savings, but for now it’s about cutting costs wherever necessary to make ends meet.”
A UK Treasury spokesperson said: “We are committed to supporting savers at all income levels and at all stages of life. To make sure people keep more of what they earn, we’ve reduced the Universal Credit reduction rate for low-income households, giving 1.7 million households an average of an extra £1,000 per year.
“We have increased the amount people can save without paying tax to £20,000 a year for Isas and increased the Personal Savings Allowance for base rate taxpayers to £1,000 and £500 for higher rate taxpayers – allowing 95% of people with savings income to pay no tax on that income.
“We are also raising the incomes of the lowest earners through an increase in the National Living Wage, which means an extra £1,000 a year for a full-time worker and have increased National Insurance thresholds, which allows a typical employee save over £330 a year. ”
3Gem surveyed 2,000 UK adults between February 14 and 20.