Brits are back in savings mode after a spendthrift summer

After a collective loosening of the purse strings this summer households are concentrated on saving once again, writes Tom Briffitt, senior consultant at MRM.

‘Spring forward, fall back’ is a handy phrase for remembering what happens when the clocks change. But as we move on from British Summer Time and look ahead to the winter, it’s also a rather apt description of 2021.

Spring coincided with the reopening of retail and hospitality venues as the economy sprung back into action. The easing of Covid-19 related restrictions and the government’s roadmap out of lockdown gave us all hope for the months ahead.

By the time summer came around households were enjoying a mild spending frenzy. Data from Barclaycard revealed that year-on-year card payments were up 10.4% and 14.5% respectively in July and August.

The success of the vaccination program and the Three Lions at Euro 2020 also contributed to growing consumer confidence.

As people enjoyed the opportunity to spend more of their hard-earned cash, the amount of money Brits’ chose to save fell away.

The proportion of their income that households saved peaked at an all-time high of 23.4% in the early stages of the pandemic in Q2 2020 and spiked again in the early months of 2021 during lockdown. But as the economy roared back into life and household spending increased, the UK’s saving ratio fell sharply to 11.7% in the three months to June.

But with the end of British Summer Time and the cost of living on the rise, there are signs that consumers are falling back into a more cautious mindset.

The most recent figures from the Office for National Statistics reveal prices rose by an average of 3.1% over the past 12 months and inflation is expected to surpass 4% by December.

The last time that happened was in October 2008, so for a lot of younger families in particular, it will present a new challenge when it comes to managing their money.

In fact, the results of the latest Money Matters Index (MMI) from Mouthy Money reveal three in four (75%) Brits are concerned about rising inflation.

In a nutshell, rising costs mean that people can buy a little bit less with every pound they spend. Now that might not be a major problem for higher earners with more disposable income, but for those on lower incomes or without savings to fall back on it can be a real cause for concern.

Of the readers surveyed by Mouth Money, just over a third (36%) said the rising cost of living will mean they won’t have enough to pay for essentials, like food, clothing and utilities.

With fuel prices at a record high, energy costs going up and mortgage rates on the rise, many Brits are facing a challenging winter financially.

These factors also help to explain why saving is once again front of mind for many people. Nearly half (45%) of MMI respondents said that building up a savings buffer is their number one financial priority at the moment.

Unfortunately, rising inflation is also bad for savers as effectively it means the value of the money they deposit in cash reduces over time. One solution is for people to start investing or investing more of their savings, as the stock markets offers greater growth potential.

As the nights draw in, it will be interesting to see if the UK savings’ ratio begins to bounce back once more and whether rising inflation sparks a fresh retail investor boom this winter.