Britons in December saved a quarter of what they had in each of the previous months of 2021 and borrowed more, as two-thirds of the population reported rising living costs, official data showed.
UK households deposited a net £2.7bn in banks in December, compared with a monthly average of £10.6bn in the year to November, according to data published by the Bank of England on Tuesday. The figure was also half the average monthly net flow of £5.5bn in the year to February 2020, before the pandemic.
At the same time, individuals borrowed £800mn in consumer credit, above the £700mn average of the previous six months, despite overall economic activity being hit by surging Covid-19 infections following the spread of the Omicron variant.
Thomas Pugh, economist at RSM UK, a financial services consultancy, said the figures “suggest that consumers are borrowing more and saving less as they try to maintain their lifestyles in the face of surging inflation”.
He said that normally a rise in consumer credit is a good indication that consumption is growing strongly because it tends to expand when the economy is healthy. However, with falling retail sales and activity in December the data suggest that consumers are dealing with surging costs and attempting to maintain similar living standards by borrowing.
Households’ liquid assets — their deposits with banks and building societies, as well as cash stored in National Savings and Investment accounts — also increased by less than the amount of the average of the previous six months in December, indicating that households had begun to draw down the savings accumulated during the pandemic.
“We judge that this reflects households attempting to support their current level of expenditure while their real disposable incomes are being battered by high inflation, rather than a positive shift in consumers’ sentiment,” said Samuel Tombs, economist at Pantheon Macroeconomics.
Separate data published on Tuesday by the Office for National Statistics showed that two-thirds of adults in Great Britain reported higher living costs. In January around one quarter of households reported using their savings to address the rising costs of living and about 20 per cent of the population said they had to borrow more, according to the ONS.
More than half reported spending less on non-essentials and about one-third said they had cut back on their use of gas or electricity.
About nine in 10 of those who reported a rising cost of living attributed it to more expensive food and eight in 10 flagged higher gas and electricity bills, the ONS said.
However, rising energy prices disproportionately affect those on the lowest incomes. In fact, the poorest 10 per cent of households spent more than half of their average weekly expenditure on essentials such as electricity, gas, food and transport, ONS data showed. This is 12 percentage points higher than for the richest 10 per cent of households.
UK consumers save less and borrow more as living costs rise
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