Disposable Income In The UK Continues to Drop
11th July 2017
Are you working hard but finding that your savings account is not reflecting your effort? Do not worry too much if you said yes as you are not alone. According to figures released by the Office for National Statistics (ONS), household saving rates across the UK are the lowest since records began in 1963.
Whilst it is challenging to pinpoint exactly why households are finding it harder to save, the statistics below suggest that a prominent reason is UK consumers simply living beyond their means. In some cases, this is no fault of their own, but has been resulting in many seeking debt help and advice from experts.
According to data produced by ONS, in the last quarter of 2016 ‘real household spending’ in the UK increased by £2bn, or in other terms by 0.7 per cent. This has lead to ‘household spending per head’ rising back up to pre-crisis levels. In other words, the statistics conveyed the image that the majority of consumers had enough money to purchase things they both wanted and needed.
However, in conjunction with the increase in consumer spending, the ‘real household disposable income’ fell by 0.4 per cent in the same period. This appears to be caused by rising inflation rates following the brexit vote, which saw the value of the pound decrease and everyday items become more expensive. Furthermore, people’s wages are not growing to match the increase in general living expenses.
Because of these rising costs, people have been dipping into their savings and taking out loans, which has led to the UK ‘Household saving ratio’ (a measure of the amount of income households have available for saving, based on a share of their disposable income) drop by 2.3 per cent.
Many specialists are becoming increasingly wary of this situation, for example John Hawksworth, chief economist at PwC. He surmised the current situation succinctly, claiming that:
‘In short, the UK consumer increasingly appears to be living beyond their means and this cannot continue forever as inflation rises further above target over the course of this year, squeezing real earnings.’
What to do
There is not much any of us can do about rising inflation rates and costs of living, we can however become more cautious with our spending habits. This will help mitigate some of the strain which the coming months are expected to exert on our bank accounts.
According to Rachael Griffin, a financial planning expert at Old Mutual Wealth, a large number of UK households do no have ‘any sort of cash savings or insurance to protect against financial difficulty if life throws unexpected challenges at them.’
In today’s climate of risk and uncertainty, a ‘cash buffer’ should be a main focus for us all. Griffin suggests that all households should try to keep 3 months’ worth of essential spending in a savings account.
These savings should cover the costs of essential spending such as rent or mortgage repayments, groceries, and utility bills. However, be careful with what saving account you select since, according to a MoneyFacts report, nine out of ten easy-access saving accounts have an interest payment of less than 1%.
Saving 3 months of essential spending will by no means be an easy endeavor- especially in light of the above statistics- but there are small changes we can all make to our lives which will help each pound stretch further. In previous articles we have given suggestions on how to save this summer but still have fun, and how to be smart with your utilities, for example.
Below though are my top two saving tips:
- Cut Back
As simple as it may sound, try not to take out extra loans or extend your overdraft for little things, as the amount that households are borrowing has been causing concern. Instead, look closely at your bills and see if there are things you are wasting your money on. For example, check your subscriptions – are you using your music, gaming, tv streaming or gym membership? If not, cancel them straight away as these savings can quickly add up. Before making every purchase, ask yourself the simple question, ‘is this necessary?’; if the answer is no, do not buy the item and instead put that money into your savings account.
- Run an Efficient Home
With the rising costs of energy, home bills have doubled in the last 15 years alone. To save money here, make sure you are with the best value energy supplier available, and that you cannot get a better deal elsewhere. Secondly, don’t waste electricity – ensure that all devices are turned off at the wall, and not left on standby. This is a great place to start saving, as it has been suggested that leaving a coffee machine on standby for a month could cost up to £10. A small amount of money in the grand scheme of things, but still an easy way to being saving money, which can instead be slipped into your savings account.