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Savings growth at lowest level since April 2018

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In his latest column our Savings Director, Derek Sprawling, provides his analysis on the decline in UK savings growth. 

After two years of delays and plans disrupted by the pandemic, summer holidays are back and savers will no doubt enjoy the benefits of having put money aside to have fun for a week or two.

Despite much publicised travel disruption, this relative return to normality is apparent in recently released data from the Bank of England, which records a decline across June in the growth of savings deposits.

The data from pre-2020 shows a similar trend. We can see dips from May onwards before savings deposits start to rise again in the run-up to Christmas.

But 2022 is starting to look noticeably different to 2019, and not just because of the post-pandemic economy.

With inflation starting to take hold, and energy prices set to rise once again, June’s data shows that UK savings growth has fallen to its lowest level since April 2018.

While savers deposited £5.2 billion in May, this soon fell to £1.5 billion over the next month.

No one statistic or new set data alone can predict where the economy is heading, or what is happening to the finances of British savers, but it does raise the question of whether we will soon see negative growth in overall deposits as people start to dip into their savings to cover price increases.

The new Bank of England figures are also not the only set of savings data that highlights the decline in saving’s growth. Remember, part of the plan for economic recovery post pandemic was that some of the ‘accidental’ savings built up in 2020 would be used to fund major purchases and fuel economic recovery. With consumer confidence so low, those savings might well stay where they are – or be used to cover everyday purchases.

Compiled from data provided by its member institutions, the latest set of savings figures from CACI found that overall deposit growth fell to only £7 million in May – compared with £2 billion across April.

The UK’s unexpected 0.5% GDP growth in May has been in part attributed to the return of the holiday sector, and this would fit with the pattern we see in the Bank of England and CACI data, but when considering inflation it will surely be more than just holidays that are driving the recent savings growth decline.

The Bank of England data does though point to some reasonably positive news for savers, with the effective interest rate paid rising by 0.33% to 1.58%.

While welcome, the new effective rate is still far below what savers could be earning on their hard-earned deposits and points to a way in which savers could potentially support themselves in the time ahead.

Those planning for their summer 2023 could today be earning over 1% more than they can via high street providers by researching for the best deals available for their circumstances, and I implore them to invest some time over their summer break to do just that.

As we wait to see whether the recent pause in savings deposit growth is the start of a new trend or a one-off event we will also see a new occupant take charge of the keys to No 10, with both candidates promising action on inflation and presenting prospective plans to alleviate the nation’s stretched personal finances.

While the success, or failure, of a new prime minister in tackling the challenges facing savers remains to be seen, a prudent course of action remains to take advantage of what is available now so that they can once again put money aside to enjoy on their next summer holiday.