Savings drop off a cliff: Households putting aside just 1.7% of income – that’s less than at any time in 54 YEARS
Households are putting away into savings the smallest proportion of their disposable incomes since the 1960s, according to the latest official data.
The savings ratio, or the proportion of income saved, has fallen sharply in the last year – from 3.3 per cent in the final three months of 2016 to 1.7 per cent between January and March this year.
The figures will compound fears that many households would not have an ample buffer should things take a turn for the worse, for example if interest rates rise or should the unemployment rate rise.
Savers have suffered a vicious concoction of dwindling interest rates and rising inflation – now at 2.9 per cent – which means it’s almost impossible to protect nest eggs from being eroded.
Plunging: The savings ratio has dropped significantly since the financial crisis
According to information website Moneyfacts, savers have faced a ‘never-ending battle’ to get a solid return on their cash in the last few years.
Even the National Savings and Investment Guaranteed Growth Bond, launched in April, pays 2.2 per cent over three years – way below inflation.
Moneyfacts data shows that nine out of 10 easy access savings accounts pay interest below one per cent, with a third failing to even beat the current level of base rate, of 0.25 per cent.
Tom McPhail, head of policy at Hargreaves Landsown, said: ‘This data is likely to set alarm bells ringing – whether this is in fact evidence of a confident economy or peak complacency remains to be seen.
‘The fall in the household savings ratio is undoubtedly in large part due to the squeeze on disposable income caused by a combination of flat average earnings and rising prices.
‘Savings rates tend to fall when the economy prospers, and to rise in times of recession and uncertainty, as households cut back on consumption to build a rainy-day reserve.
‘Monetary policy and the low returns available on cash may well be a factor here too.
‘We need to develop a stronger culture of saving and investing – this is something to which the Government needs to devote more attention.’
The ONS data shows that for the first time since the 1970s, disposable income has fallen for three quarters in a row.
Darren Morgan, head of GDP at the ONS, said: ‘The saving ratio has fallen again this quarter to a new record low, partly as a result of higher tax payments reducing disposable income.
‘Some of the fall could be as a result of the timing of those payments, but the underlying trend is for a continued fall in the saving ratio.’
The ONS adds that timing of tax payments is a big factor in savings levels dipping – gross saving was £5.6billion in the first three months, down from £11billion between October and December 2016, and £17.7billion the three months before that.
The figures also show that the UK economy grew 0.2 per cent in the first three months of 2017, unchanged from earlier predictions but down from the 0.7 per cent recorded in the last three months of 2016.
Today’s findings come in a week where the Bank of England revealed concerns about the high level of borrowing in its Financial Stability Report.
It is keeping a close eye on borrowing on car finance, credit cards, loans and overdrafts.