- New figures show that the average family spent £554.20 a week in the financial year to 2017 – taking us back to the levels we saw before the financial crisis. People spent more across the board, with particular increases in spending on package holidays and cars.
- At the same time, the savings ratio fell to 7% - the lowest level since 2006.
- Consumers are taking a risky approach, which could backfire if their circumstances take a turn for the worse.
The full report is available here.
Spending boom and savings bust
The year to April 2017 saw a spending boom, partly because, on average, people were better off: those of working age were more likely to be employed; tax cuts meant working people were keeping more of their money; and inflationary pension rises benefitted retirees.
The incentive to shop was also fueled by cheap credit, and rising inflation, which encouraged people to buy sooner rather than later. So, for example, the amount spent on buying cars – particularly second hand cars bought through hire loan agreements – spiked to an average of £6.50 a week, from £4.40 a year earlier.
Interest rates during this period were low, and fell even lower, with a Bank of England base rate cut from 0.5% to 0.25% in August 2016. It stimulated borrowing, and simultaneously dissuaded people from saving. In 2016, the household savings ratio fell to 7%, the lowest since 2006.
Sarah Coles, personal finance analyst, Hargreaves Lansdown:
"During this period, high employment, 0% credit cards, and car finance deals with little or nothing to pay up front, all helped persuade people that they could afford a foreign holiday or to upgrade their motor, without breaking the bank. Meanwhile, the prospect of rock bottom savings rates did little to persuade them to put anything aside for the future."
"However, saving is never just about the interest rate, because as anyone who lived through the financial crisis knows, your circumstances can change in ways you never imagined. We’ve seen from recent retailer results that inflation has already started to take its toll on consumers. If your financial position changes at a time when you already have significant debts or are running on empty in your savings account, you can soon find yourself in hot water."
"Regardless of the interest rate you are making on your money, you still need 3-6 months’ worth of expenses as an emergency savings safety net. That way when life changes for the worse, you’ll be prepared to handle it. Shopping around and choosing an account that suits your time horizon means you can earn 1.3% or more on easy access savings, or up to 2.4% by fixing for longer. At the same time, by building up savings, and making use of your ISA allowance, when the changing economic environment eventually bring higher savings rates, you’ll be in a position to benefit from that too."