Household savings to fall by 71% in a year
By the second quarter of 2022, household savings are predicted to fall 71%, when compared to last year, because of the cost-of-living crisis.
Between April, May and June 2021 households saved an average of £92 a week. This is expected to fall to £26 for the same period in 2022.
Rises in inflation, energy bills and a change to income tax are all contributing to our ability to save less money.
In April household spending is expected to be 12% higher than a year ago, largely because of the increase to energy prices and rises to taxes.
Energy bills rose by an average of 54% at the start of April for millions because of a hike to Ofgem’s energy price cap.
The amount we pay in National Insurance also increased, by 1.25%, while our personal allowance remained frozen. Several other household bills including council tax were also hiked. Inflation is also soaring at 7% for March, driven by rising fuel and food prices.
Savings rates plummet compared to lockdown
Average weekly savings are predicted to fall from £41 in March to £27 in April and £26 in May and June, according to research from Scottish Friendly and the Centre for Economics and Business Research (CEBR).
This contrasts greatly to our saving habits at the start of the pandemic. In the first three months of 2021 household savings were an average of £152 a week.
But they are expected to improve after the third quarter of 2022. Across the entire year, the average amount saved is predicted to be £39 a week, a drop of 56.6% on 2021.
Three quarters (72%) of consumers think their living standards will worsen over the next year, according to a study of 2,000 people.
Around one in four (24%) thought their living standards would fall significantly. Half of those asked said they would change the type of goods and services they buy in order to save money.
This comes as card spending data reveals consumers have started bulk buying, switching to own-brand items, and cutting our luxuries to make their money go further.
Consumers cashing in savings and using credit to cope with rising costs
More than half of households (52%) have taken money out of their savings and investments to boost their income in the past six months.
Along with changing their buying habits, 19% plan to rely on their savings to meet the continued increases to everyday items.
Many are also relying on borrowing money and credit with 21% borrowing from friends and family members, 18% using credit cards, 11% overdrafts, and 9% personal loans.
Kevin Brown, savings specialist at Scottish Friendly, says: “Household savings are set to fall well below pre-pandemic levels in the second quarter of this year as Brits’ take-home pay drops and their outgoings rise.
“The 1.25% hike in national insurance contributions and the freezing of income tax bands couldn’t be happening at a worse time for families.
“As a result, households’ ability to save and invest is going to be severely reduced in the short-term. Not only are people going to be able to put away less money, but they may also have to rely on existing savings to maintain their normal standard of living.”