Savings hit highest level since Covid shutdowns as households cut spending

Households saved more money in September than in any month since the end of the foreclosure, a sign that nervous consumers will not help the UK out of recession.

Families invested a further £8.1billion in bank and building society accounts in September, Bank of England data shows. This compares to a £3.2billion increase in August and also represents the biggest increase since June 2021, which was the last full month before Covid restrictions were fully lifted in England.

It also compares to an average monthly increase of £4.6billion in 2019, before the pandemic hit.

Data showed that households leave the bulk of extra cash in their checking accounts, suggesting they want easy access to cash. The amount of zero rate accounts rose by £4.1bn in September, following a £1.6bn rise in August.

By comparison, the number of households tying up their savings in a fixed-rate bond rose to £3.4bn, from £1.1bn in August.

Households have racked up £251billion in extra savings during the pandemic, according to the Office for National Statistics (ONS).

The UK Statistics Office estimated on Monday that around 77% of that sum had been ‘forced’ to save during lockdowns. This equates to about 13% of annual household disposable income.

However, Ashley Webb, an economist at Capital Economics, said much of that money was unlikely to be spent. He said the Bank of England data “suggests that households are becoming more cautious as the economic outlook deteriorates. This suggests that households may not be drawing on savings to support spending, which is a additional downside risk to our forecast that the economy is heading into recession.”

Martin Beck, chief economic adviser to the EY ITEM club, said the data pointed to “a household sector that lacks confidence and is unable or unwilling to borrow more and save less to try to fight the squeeze on real income.

In better news for savers, average interest rates paid on new fixed-rate bonds rose from 1.94% to 2.49% in September, the biggest monthly increase since December 2021, when the Bank started raising interest rates.

However, banks have been slower to raise interest rates for existing customers. The average instant access account still pays just 0.43pc, even though the Bank of England base rate now stands at 2.25pc.