Hanging on to pandemic savings ‘increasingly unlikely’ for many households
6th June 2022 13:10
by Myron Jobson from interactive investor
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interactive investor comments on ONS UK household saving ratio and Covid data.
Commenting, Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “The assorted Covid lockdowns and social restrictions forced us into frugality, with household savings as a proportion of household resources hitting a record high at the height of the pandemic disruption. However, this doesn’t tell the full story.
“The ONS says consumers saving up in anticipation of a change in income or wealth and for a rainy day have also contributed to the revival of the nation’s savings culture. However, both these motives don’t appear particularly strong, accounting for 0.5 and 1.5 percentage points, respectively towards the increase in the savings ratio in Q2 2020, compared to Q4 2019. In comparison, forced savings – those resulting from lockdown restrictions – was responsible for a whopping 11 percentage point.
“It is clear that the pandemic resulted in a seismic shift in savings behaviour. The escalating cost of living crisis means that those who were fortunate enough to become accidental savers won’t be able to spend their bumper savings how they would have envisaged once Covid restrictions were lifted.
“Hanging on to this cash seems increasingly unlikely for many, with the cost of everything rising.
“The need to build and maintain a cash buffer has become increasingly important amid the worst fall in living standards in a generations. And with wage growth failing to keep pace with inflation, many consumers will be left with little option but to raid their lockdown savings to cover additional costs.”
Key points:
- Household saving in the UK as a proportion of household resources increased significantly during the coronavirus (Covid-19) pandemic, peaking at a record 23.9% in quarter 2 (Apr to June) 2020.
- The sharp rise in household saving coincided with government-imposed restrictions on social contact and economic activities resulting in significantly reduced household spending.
- Using an econometric model of the household saving ratio, it is estimated that approximately three-quarters of the increase in household saving during the pandemic was the result of forced saving; this amounts to over £140 billion, or around 10% of annual household disposable income.
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