• The UK savings ratio, which measures how much people save as a proportion of their disposable income, hit a record high of 29.1% in Q2 2020 (https://www.ons.gov.uk/economy/nationalaccounts/uksectoraccounts/articles/quarterlyeconomiccommentary/apriltojune2020)
• Savings surge in part reflects a decrease in spending as COVID-19 and lockdown hit the UK economy
• Household consumption dropped 23.6% during the quarter, with the decline predictably driven by falls in spending on restaurants and hotels, transport, and recreation and culture
• Brits also moved to cut debt amid rising uncertainty around future employment prospects
Tom Selby, senior analyst at AJ Bell, comments: “With lockdown strangling the ability of Brits to spend and the Government’s furlough support scheme working to protect jobs and wages, it was inevitable those people lucky enough to remain employed would save more as a result.
“For those who are in this position it is vital they use this opportunity to pay off any high cost debts and build up a decent cash buffer if they haven’t already done so. While cash savings rates may be low, it is still worth shopping around to get the best deal possible.
“A cash buffer could provide a critical safety net against future uncertainty, with job cuts likely to spike as the new, less generous Job Support Scheme replaces the furlough scheme from the start of November.
“You should aim to have a cash reserve to cover at least three months’ fixed costs – although if you can’t afford this then something is always better than nothing.
“Those who already have a cash buffer in place and have a longer-term time horizon might also consider investing via an ISA or topping up their pension contributions.”
Negative interest rates
“Of course while some people have been better-off as a result of lockdown, there is a clear divide in the UK with others suffering severe hits to their incomes and struggling to make ends meet as a result.
“From the Government’s perspective, the higher savings ratio presents a short-term problem as it partly reflects the parlous state of the wider UK economy.
“It also perhaps explains why Bank of England governor Andrew Bailey is toying with introducing negative interest rates for the first time in a desperate bid to get people to spend more of their spare cash.”
