Savings levels plummet as people spend their pay rises
The figures showed credit card spending at £10.8bn in January 2019, 4.4% higher than the same month last year. Over the past 12 months, the level of credit card borrowing outstanding also grew by 4.4%. Personal borrowing through loans and overdrafts grew by 4.7% in the year to January.
These growth levels are well ahead of wage growth – which was 3.4% over the year to January – suggesting people have been encouraged to borrow more by higher wages.
In contrast, savings rates saw negligible growth. Personal deposits grew by 0.4% in the year to January 2019. Within that, deposits held in instant access accounts were 2.4% higher than last December, reflecting consumers’ preference to keep cash close to hand amid ongoing economic uncertainty.
Mortgage lending dropped over the same period. It sat at £21.6bn for January 2019, 1.5% lower than the same month the previous year: approvals for home purchase were 1.5% higher, while remortgage approvals were 3.1% lower. Approvals for other secured borrowing were 6.8% higher, suggesting home owners may be staying put and improving their existing homes.
This follows several months of strong growth in remortgaging earlier in 2018, as customers took advantage of a competitive mortgage market to lock into attractive deals.
Sarah Coles, personal finance analyst, Hargreaves Lansdown said: “We withdrew over £10bn in savings from the high street between December and January – with balances in high street easy access accounts, fixed rate bonds and cash ISAs all falling back over the month. This isn’t unusual – we tend to raid our savings a bit in January, as Christmas makes a dent in our finances – however, it’s also part of a far more worrying trend.
“The annual growth of savings has plunged to 0.4%, while the amount in high street cash ISAs has dropped 3% in a year and the money in high street fixed rate bonds has fallen almost 6%. The growth rate has dropped dramatically over the past two years from over 3%, falling below 1% in September last year, and continuing to shrink. At this rate, there’s a real risk it will turn negative by the spring.”
Hargreaves Lansdown statistics show that almost one in four people have no savings at all. Among those who have savings, more than one in five couldn’t last longer than a month on their savings.