- Household savings fell 85% year-on-year to an average of £14 a week in Q2
- Average households facing shortfall between earnings and spending of £9 a week in Q4 2022
- Real savings returns are at their lowest level since February 1976
MOUNTING inflation and increased taxation will leave the average UK household without enough money to cover all of their monthly living costs from later this year.
A new study by Scottish Friendly and the Centre for Economics and Business Research (Cebr) reveals that households in Britain will face a savings deficit of £9 a week from Q4 2022, as their expenditure outweighs earnings.
The rising cost of living means households saved an average of just £14 a week in the second quarter of 2022 – a drop of 85% on the previous year.
On aggregate, weekly household savings are forecast to have fallen from £2.6bn in Q2 2021 to £404 million in Q2 2022.
Further downward pressure on households’ ability to save is expected later this year, limiting the amount households are able to save a week to just £11 in Q3.
The outlook for the final three months of 2022 is particularly bleak as spending is expected to exceed earnings by £9 a week for the average household.
In practice, this means households will need to find additional income to fund their living costs and could be forced to use savings or to borrow money.
Based on Cebr’s current forecasts, Q4 2022 is set to be the lowest point of the cost-of-living crisis, but saving levels are expected to remain in negative territory during the first two quarters of 2023.
A survey of more than 2,000 UK adults conducted as part of the study, reveals that seven in ten (70%) Britons expect rising living costs to negatively impact their living standards over the coming year.
To cope with the effects of inflation, 41% of respondents anticipate they will have to reduce the quantities of goods and services that they buy.
Rising utility bills is cited as the main cost pressure by 73% of households and half (50%) of them say they have had to reduce their energy consumption.
In addition to the impact on people’s financial well-being, the cost-of-living crisis is also affecting individuals’ mental well-being, with more than half (52%) of survey respondents stating that it has caused them to feel anxious.
Kevin Brown, savings specialist at Scottish Friendly, comments: “The cost-of-living crisis is now clearly impeding the lives of millions of people across the UK.
“By the end of the year, the average household won’t have enough money to make ends meet, which is likely to drive up people’s dependency on credit.
“The problem is not only caused by rising inflation but stagnant wage growth. It’s a rare combination, there’s only been two occasions in the last 50 years when workers’ real pay has contracted – 1976-78 and 2008-10.
“As a result, saving may seem like a luxury for a lot of people at the moment. But if you can afford to put away even £10 or £20 a month, it’s worth doing so, as you will begin to accumulate a sum of money to fall back on when needed.
“If you already have that, then investing some of what you save could be right for you, as real savings rates still remain at their lowest since the mid-70s.”