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UK households are prioritising saving over spending amid considerations in regards to the gloomy financial outlook, regardless of decrease borrowing prices offering some reduction, in accordance with analysis that alerts a possible drag on progress.
February was deemed a “good time to save” by a web 30 per cent of customers, the identical proportion as in January, knowledge from analysis firm GfK confirmed on Friday.
The determine is simply shy of the 33 per cent post-financial disaster excessive and effectively above the minus 2 per cent common between 2008 and the tip of 2020, earlier than the value of residing disaster and a pointy rise in rates of interest.
GfK’s separate total client confidence index — a measure of how folks view their private funds and broader financial prospects — rose 2 share factors to minus 20, helped by the Financial institution of England’s quarter-point price minimize earlier this month.
The survey was carried out within the first half of February, as considerations rose that poor financial progress and sticky inflation might set off a interval of “stagflation” and companies warned of greater costs and job cuts following tax rises within the autumn Price range.
Official knowledge printed on Wednesday confirmed that inflation rose greater than anticipated to a 10-month excessive of three per cent in January, whereas the economic system barely grew within the second half of 2024.
Neil Bellamy, client insights director at NielsenIQ/GfK, stated the findings pointed to folks “putting money away for a rainy day [because] they don’t have much confidence in the way the economy is going”.
Many households had been saving quite than spending “because they think there could be more trouble ahead”, that means “less money in the economy”, he added.
The GfK sub-index monitoring views of the final financial scenario rose 3 factors on the month however was nonetheless deeply destructive at minus 31.
The survey means that the hole between robust pay progress and weak client spending might proceed, limiting prospects for financial progress.
Official knowledge on Tuesday confirmed that wages adjusted for inflation rose on the quickest tempo since 2021 within the three months to December. However family spending per capita fell within the third quarter of 2024, contributing to weak GDP progress.
The sub-index monitoring the share of customers saying it was time to make huge purchases rose three factors, extending the restoration from lows seen on the top of the price of residing disaster however was nonetheless destructive at minus 17. Within the six years earlier than the pandemic, the common studying was optimistic.
The most important single enchancment was in how customers noticed their private funds for the approaching 12 months, with a rise of 4 factors to plus two taking the measure out of destructive territory.
Bellamy stated the BoE’s resolution to chop rates of interest from 4.75 per cent to 4.5 per cent this month would “have brightened the mood for some people” equivalent to mortgage holders and potential homebuyers.
However he added that “the majority are still struggling with a cost of living crisis that is far from over. Prices are still rising above the BoE’s target; gas and electricity bills remain a challenge for many households.”
BoE rate-setter Catherine Mann instructed the Monetary Instances that slowing client demand was why she voted for a jumbo half-point minimize on the central financial institution’s assembly on February 6.
“We’ve observed rising real incomes for quite some time and with rising real incomes, consumption should be more robust. I thought it was going to happen last year. I was talking about savings being dry powder for consumption. That has not materialised,” she stated in an interview.
