Overall household savings have shrunk annually for the first time in at least 15 years, as people dipped into pots to cover bills and spending, according to a body representing the UK banking and finance industry.
The value of deposits in instant access accounts fell by 4% to £867 billion in March 2023 compared with £905 billion in March 2022, UK Finance said.
Overall personal deposit levels fell by 1% annually in March 2023, compared with the same month a year earlier.
Cost-of-living pressures and higher interest rates weighed on households in (the first quarter of 2023)— Eric Leenders, UK Finance
UK Finance’s Household Finance Review said: “We are likely to see further falls in savings levels until current cost pressures ease.”
For households still able to put away money, the significantly higher rates on longer-term savings products led to a 15% increase in the value of money put away in accounts where notice has to be given to make withdrawals, the report said.
Deposits held in notice accounts increased from £172 billion in March 2022 to £198 billion in March 2023.
Despite cost pressures, the start of 2023 was “business as usual” for many consumers, the report said.
We saw the first year-on-year drop in savings levels in 15 years as people dipped into their savings pots to pay their bills and support usual spending— Eric Leenders, UK Finance
It continued: “Consumer spending typically sees a dip in the early months of the year following the festive splurge.
“2023 started in similar fashion, with spending in supermarkets and other regular spend items seeing a seasonal contraction. However, this was offset by buoyant activity elsewhere, with a significant uptick in spending on travel, including with airlines.”
Eric Leenders, managing director of personal finance at UK Finance, said: “Cost-of-living pressures and higher interest rates weighed on households in (the first quarter of 2023).
“We saw the first year-on-year drop in savings levels in 15 years as people dipped into their savings pots to pay their bills and support usual spending.
As always, it's crucial that customers worried about their finances speak to their lender as soon as possible, so that they can discuss the options available for help— Eric Leenders, UK Finance
“Meanwhile, mortgage lending dropped significantly at the start of the year, although some borrowers are still stretching affordability with longer term mortgages.
“More recently, uncertainty around the inflation outlook has led to another bout of elevated volatility in swap markets, leading to some repricing by lenders.
“While this persists, we expect near-term mortgage market activity to remain relatively fragile.
“Borrowers coming to the end of their fixed-rate deal are encouraged to seek advice from a whole-of-market broker.
“As always, it’s crucial that customers worried about their finances speak to their lender as soon as possible, so that they can discuss the options available for help.”
