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Banks (Finance)

Consumers Run Down Savings as Inflation Bites

Strategic Insights

— 1 min read

As inflation rises, consumers are turning to borrowed money to sustain spending patterns, according to Bank of England figures. The total savings in the UK dropped to £3.2 billion in December, a significant decline from the previous 12 months average of £10.6 billion. Meanwhile, consumer credit increased by £800 million, with £400 million of this being credit card debt. Analysts warn that this trend may continue over the next year as households try to maintain their lifestyles in the face of rising prices.

Key Takeaways:

  • The total savings in the UK dropped to £3.2 billion in December, less than a third of the £10.6 billion monthly average for the previous 12 months.
  • Consumer credit increased by £800 million, with £400 million of this being credit card debt.
  • Thomas Pugh, an economist at RSM UK, suggests that consumers are borrowing more and saving less to maintain their lifestyles in the face of surging inflation.
  • Samuel Tombs, a UK economist at Pantheon Macro, states that households are unlikely to be dipping into savings voluntarily, given the drop in consumer confidence.
  • Excess savings accumulated while spending opportunities were restricted over the past two years would now be run down to compensate for a likely drop in real (inflation-adjusted) incomes of 1.5% this year.
  • Demand for mortgages remains strong, with 71,000 approvals for new home loans in December, compared to an average of 66,700 a month in the year ending in February 2020.
  • The IHS Markit and Chartered Institute of Procurement and Supply's snapshot of manufacturing found output and employment rose at their fastest pace in six months as firms responded to stronger order books and started to get on top of supply bottlenecks.

Statistics:

  • Total savings in the UK: £3.2 billion (December 2021)
  • Monthly savings average for the previous 12 months: £10.6 billion
  • Consumer credit increase: £800 million (December 2021)
  • Credit card debt increase: £400 million (over the past year)
  • Consumer confidence: dropped to an 11-month low in January
  • Real (inflation-adjusted) income drop: 1.5% (expected this year)
  • Mortgage approvals: 71,000 (December 2021)
  • Pre-pandemic mortgage approvals average: 66,700 (year ending in February 2020)

Sources:

  • Bank of England figures
  • Thomas Pugh, economist at RSM UK
  • Samuel Tombs, UK economist at Pantheon Macro
  • IHS Markit and Chartered Institute of Procurement and Supply's snapshot of manufacturing
  • Photograph: Artur Widak/NurPhoto/Rex/Shutterstock

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