UK Households Withdraw Savings at Fastest Ever Rate

 

 

 

 

 

 

 

 

UK households are pulling money out of their savings accounts at the fastest rate ever recorded, as they draw on rainy day funds to weather the cost of living storm. 

 

Figures from the Bank of England show households withdrew a net £4.6 billion from banks and building societies in May, the highest level of withdrawals since it started collecting the monthly data in October 1997. The figure suggests those able to do so are running down their funds to sustain living standards or to pay off mortgages or loans before needing to refinance at higher interest rates. 

 

Richard Lane, the director of external affairs at the debt charity StepChange, said: “This is the latest in a long line of warnings that more and more people are struggling to cope with the cost of living. Whether it’s a sky-high energy bill, a sudden jump in mortgage payments or the gradual increase of the price of the weekly food shop, cost pressures are everywhere and eroding people’s financial headroom, leaving them more vulnerable to harmful borrowing and problem debt”. 

 

It is pertinent to point out that households built up savings to record levels during the Covid pandemic, amassing an estimated £200 billion in extra deposits as lockdowns forced consumers to stay at home, while furlough supported the incomes of millions of workers. 

 

Daniel Mahoney, the UK economist at Handelsbanken, said: “This provides strong evidence that households are dipping into excess savings built up during the pandemic to sustain living standards during the current cost of living squeeze caused by the high inflation environment”. 

 

It was, however, mostly households in the top 40% of earners who experienced marked increases in saving, while the poorest fifth lost money. Many have no savings or little held in reserve, particularly among younger adults, those on lower incomes, and renters.