Here’s why UK households are burning through their savings faster
Key Points
- UK households depleted savings faster in August, with the savings index falling to 40.1 from 41.8.
- Lowest-income households were hit hardest; only the highest earners added to savings.
- Demand for unsecured credit rose to 52.0 while availability fell to a two-month low.
- The lowest income bracket accumulated debt at the fastest pace of any group.
- 47% of households now expect a Bank of England rate hike, against 18% expecting a cut.
UK households ran down their savings at a quicker rate in August than in July.
The savings index in the S&P Global UK Consumer Sentiment Index fell to 40.1 from 41.8, a two-month low, with readings below 50 signalling depletion. The pace of erosion remained historically strong and accelerated over the month.
The data shows that lowest-income households felt the strain most acutely, while the highest-earning group was the only cohort able to add to its savings.
Falling pay sits behind the squeeze. August brought the first drop in employment income in 40 months, and disposable incomes continued to fall, with households reporting a further substantial decline in the cash available to them.
The squeeze eased slightly compared with recent months, and caution towards big-ticket purchases was the weakest since March.
Borrowing appetite picked up as savings drained. Demand for additional unsecured credit rose to 52.0 from 50.0 after stabilising in July, while availability slipped to 48.7 from 49.3, a two-month low.
Overall household debt levels fell for the first time since last October, driven by the highest-earning households paying down borrowing sharply. Households in the lowest income bracket accumulated debt at the fastest pace of any group monitored.
“Debt and the depletion of savings also weighed increasingly on household sentiment in August. Demand for additional borrowing picked up as households reported a faster erosion of their savings,” said Maryam Baluch, Economist at S&P Global Market Intelligence.
Interest rate expectations turned more hawkish over the month. The net balance of households expecting higher rates rose to +29% from +23% in July, with 47% anticipating a hike and 18% expecting a cut.
The overall Household Finance Index rose to a five-month high of 41.2 as expectations for the next 12 months improved to 44.6, a six-month high.
Views on current finances weakened to 37.9 from 38.1, a two-month low. Households in London recorded the largest negative swing in sentiment, and those in Northern Ireland registered the sharpest deterioration in their current financial wellbeing.
S&P Global Market Intelligence surveys 1,500 UK households each month and publishes the next reading on 21 September.
