British consumers have been dipping further into their savings amid a squeeze from rising prices and falling real wages, figures show, as growth in personal bank deposits fell to the slowest annual rate since the height of the financial crisis.
Annual growth in personal deposits with high street banks fell to 2.2% in August, in the weakest month since May 2009, according to figures published by banking trade body UK Finance. There was also about £1bn withdrawn from cash Isa accounts, with tax changes allowing up to £1,000 of interest to be earned tax free.
The trade body said: “It seems households are saving a bit less each month, rather than borrowing more, as growth in personal deposits has slowed recently, alongside a slowdown in growth of consumer credit borrowing.”
Annual growth in credit card borrowing was at 5% in August, compared with 5.3% the previous month, while the use of personal loans and overdrafts fell by 1.6% on an annual basis, from a contraction of 1% in the year to July.
UK Finance said that overall the annual growth in consumer credit slowed from 1.9% in July to 1.5% in August.
Although consumer confidence has taken a hit amid rising prices as a result of the weak pound and uncertainty over Brexit, retail sales growth suggests shoppers have not cut back on spending just yet. Growth in retail sales volumes rose by 1% in August after the Office for National Statistics revised the figure for July up to 0.6%
There have been fears Britons were increasingly turning to credit cards and loans in order to fuel their shopping habits. However, the falling rate of bank deposits also suggests consumers are dipping into their savings.
According to the latest ONS figures, the amount of household money available to save fell to an all-time low in the first three months of this year.
The amount being set aside as savings slipped to 1.7% of disposable income – a fraction of the near-10% average for the last 50 years. A year ago, it was more than three times the current rate.
The spending power of British consumers is likely to come further under pressure from inflation, with the Bank of England forecasting the consumer price index (CPI) to peak above 3% in October. The CPI measure of inflation stood at 2.9% in August, driven by the rising cost of importing fuel, clothes and food.
Threadneedle Street kept the cost of borrowing on hold this month but said it could raise interest rates for the first time in a decade from as early as November to keep rising inflation in check.
Mohammad Jamei, UK Finance’s senior economist, said: “Across the UK some households have opted to save a little less, whilst others have not increased their borrowing.”
