Household saving is expected to fall by 71% year-on-year to an average of £26 a week in the second quarter of 2022, as inflationary pressures drastically reduce families’ ability to save.
A new study by Scottish Friendly and the Centre for Economics and Business Research (Cebr) estimates households would need to earn an extra £80 a week (before tax) or spend £66 less to save at the same level as in the second quarter of 2021.
Household spending in April 2022 is expected to be 12% higher than during the same month last year, as the Ofgem price cap rise and new tax polices come into effect.
As a result, average weekly saving is expected to fall from £41 in March 2022 to as little as £27 in April, a further reduction to £26 in May and June.
Household saving soared during the pandemic and peaked in the first three months of 2021, with the average household saving £152 a week.
Since then, saving levels have fallen every quarter but they are expected to recover from the third quarter of 2022 onwards, as inflationary pressures ease and wage growth improves.
It is forecast that households will save an average of £39 a week across the whole of 2022, a drop of 56.6% on last year (£89/week).
More than 2,000 UK adults were surveyed by Scottish Friendly and Cebr, with 72% stating that they expect rising prices to worsen their living standards over the coming year.
Among them, 24% expect their living standards will fall “significantly”.
The most widespread impact of the cost-of-living crisis is expected to be on consumer shopping habits with half of respondents expecting to have to change the type of goods and services they buy.
Meanwhile, 34% say they will have to change where they shop, nearly one in five (19%) will seek new income sources and a further 19% will draw upon existing savings.
To maintain their consumption habits as living costs rise, many households have already drawn down savings and/or increased borrowing. More than half (52%) have said they had to withdraw money from savings or investments to boost their income over the past six months.
Plus, 43% of consumers have borrowed money with 21% doing so from family and friends. Other sources include credit cards (18%), bank overdraft (11%) and personal loans (9%).
Kevin Brown, communications manager at Scottish Friendly, commented: “Household savings are set to fall well below pre-pandemic levels in the second quarter of this year as Brits’ take-home pay drops and their outgoings rise.
“The 1.25% hike in national insurance contributions and the freezing of income tax bands couldn’t be happening at a worse time for families.
“This will squeeze people’s take-home pay while the new energy price cap will drastically increase many households’ energy bills.
“As a result, households’ ability to save and invest is going to be severely reduced in the short-term - not only are people going to be able to put away less money, but they may also have to rely on existing savings to maintain their normal standard of living.
“Eventually, inflation will ease and wages will rise, which will allow more households to re-engage their savings, but for now it’s a case of cutting costs wherever’s needed to make ends meet.”
Scottish Friendly has roots stretching back to 1862. Established as the City of Glasgow Friendly Society, its name changed in October 1992 when it took over Scottish Friendly Assurance.
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