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UK households are prioritising saving over spending amid issues concerning the gloomy financial outlook, regardless of decrease borrowing prices offering some aid, based on analysis that alerts a possible drag on progress.
February was deemed a “good time to save lots of” by a internet 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 nicely above the minus 2 per cent common between 2008 and the tip of 2020, earlier than the cost of living crisis and a pointy rise in rates of interest.
GfK’s separate total shopper confidence index — a measure of how individuals 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 performed within the first half of February, as issues rose that poor financial progress and sticky inflation may set off a interval of “stagflation” and companies warned of higher prices and job cuts following tax rises within the autumn Finances.
Official data published 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, shopper insights director at NielsenIQ/GfK, mentioned the findings pointed to individuals “placing cash away for a wet day [because] they don’t have a lot confidence in the best way the economic system goes”.
Many households have been saving reasonably than spending “as a result of they assume there could possibly be extra hassle forward”, that means “much less cash within the economic system”, he added.
The GfK sub-index monitoring views of the final financial state of affairs rose 3 factors on the month however was nonetheless deeply unfavourable at minus 31.
The survey means that the hole between robust pay progress and weak shopper spending may 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 an excellent time to make massive purchases rose three factors, extending the restoration from lows seen on the top of the price of residing disaster however was nonetheless unfavourable at minus 17. Within the six years earlier than the pandemic, the typical studying was constructive.
The most important single enchancment was in how customers noticed their private funds for the approaching yr, with a rise of 4 factors to plus two taking the measure out of unfavourable territory.
Bellamy mentioned 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 temper for some individuals” comparable to mortgage holders and potential homebuyers.
However he added that “the bulk are nonetheless battling a price of residing disaster that’s removed from over. Costs are nonetheless rising above the BoE’s goal; gasoline and electrical energy payments stay a problem for a lot of households.”
BoE rate-setter Catherine Mann advised the Monetary Occasions that slowing shopper demand was why she voted for a jumbo half-point cut on the central financial institution’s assembly on February 6.
“We’ve noticed rising actual incomes for fairly a while and with rising actual incomes, consumption needs to be extra strong. I believed it was going to occur final yr. I used to be speaking about financial savings being dry powder for consumption. That has not materialised,” she mentioned in an interview.
