Families saved £5,000 on average during the pandemic as lockdowns stopped them from spending the cash elsewhere.
UK households saved an extra £196 billion over 2020 and 2021 compared to how much they had put away at the end of 2019, according to Office for National Statistics (ONS) estimates.
Around three-quarters of that (£145 billion) was due to “forced” savings as social restrictions stopped people from splurging on things like restaurants, hotels and travel. That is about 10% of annual household disposable income.
The lockdown savings are equivalent to £5,200 when divided evenly between the country’s 28 million households, although poorer people are far less likely to have increased their savings during lockdown. A Bank of England survey on pandemic savings published in late 2020 revealed 42% of high-income households were stashing away extra cash, compared to just 22% of those with lower earnings.
The ONS analysis showed household savings as a proportion of their income – known as the savings ratio – rose to around 24% from April to June 2020, at the height of Covid’s first wave. Between 2017 and 2019, the figure had hovered between 4% and 6%.
After the spike in early 2020, the savings rate fell again but remained above pre-pandemic levels. The remaining increase in savings was down to more usual motives such as putting cash aside for future spending, and to act as a “precautionary” buffer against unexpected changes in income.
The ONS said as schemes such as the furlough scheme – whereby the Government supported workers’ incomes during the pandemic – helped keep unemployment down, there's less motivation to save because of a fear of rising unemployment. It added that this could imply that households may spend accumulated savings relatively quickly, with the figures showing the overall savings rate fell close to pre-pandemic levels towards the end of last year.
But the scope for splashing the lockdown cash could be constrained as much of the foregone spending was for things like hotels and holidays, meaning the potential to catch up is limited. The savings may also be used to reduce debts or buy assets rather than fund an increase in consumption, said the ONS.
