UK savings fall to record low

UK households decreased their savings by a record amount in 2016, according to the Office for National Statistics (ONS).

The saving ratio is a measure of how much households can spend represented as a percentage of their total disposable income. It fell from 5.5% in the third quarter of 2016 to 3.3% in the last quarter. This is the lowest the ratio has fallen since ONS records began in 1963.

Martin Beck from the forecasting group EY Item Club said that the decrease in savings could continue due to high inflation. Increases in fuel and food prices have caused the inflation rate to rise to 2.33% and could reach 3% in the next few months. Beck said:

“2017 is likely to be a very tough year for the consumer, with little or no scope to offset the headwinds from higher inflation by borrowing more.”

According to the ONS, another factor that has affected the figures is the trend for pension funds to move investments out of high-yield shares into low-yield government bonds, and this has reduced the value of pension savings.

Financial excerpts have advised that households need to build up savings to cope with any unexpected difficulties in life. It is wise to have at least savings to last three months if one or more members of the household lose their income. Financial security needs to be prioritised over short-term spending.

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