Household savings have reached a record low, with UK residents saving on average only 1.7% of their earnings, according to the latest figures from the Office of National Statistics (ONS).
The ONS household savings ratio fell from 3.3% in the fourth quarter of 2016 to 1.7% in Q1 2017 and has been in sharp decline for more than a year.
ONS said the 48% drop was partly due to an increase in taxes on income. Meanwhile the data showed that the UK economy grew by 0.2% in the first quarter of 2017.
Concerns have also been expressed about the level of consumer borrowing on loans, credit cards, overdrafts and car finance.
These figures make grim reading but whether this is in fact evidence of an assured economy or peak complacency remains to be seen. The fall in the household savings ratio is in large part due to the squeeze on disposable income caused by a combination of flat average earnings and rising prices.
Saving rates tend to fall when the economy prospers and rise in times of recession and uncertainty, as households cut back on consumption to build a rainy day fund.
Only three in 10 of the working age population has savings of three months’ income or more and 12 million are not saving enough for retirement.
Recently Moneyfacts said that savers have faced a constant battle to get a decent return on their cash over the past few years with 9 out of 10 easy access savings accounts paying interest of less than 1%, and a third of such accounts failing to even pay a rate matching the current base rate of 0.25%. Savings rates are failing to keep pace with the rising cost of living, with inflation at a rate of 2.9%.
Governments really need to devote more attention to the development of a stronger culture of personal saving and investing.
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