A combination of Brexit and macro-economic factors has led to the savings ratio rising in 2019, reaching 6.8% in July 2019 from 5.7% a year ago, and under 4% from its low point in April 2017, according to GlobalData, a leading data and analytics company.
The company’s latest report, ‘UK Savings 2019: Review, Forecasts, and Future Opportunities’, reveals lower gross domestic product (GDP) and higher real wage growth have created a willingness and ability to save. Similarly, uncertainty over Brexit has led to a flight to safety from stocks and shares ISAs into cash ISAs.
Katherine Long, Banking Analyst at GlobalData, says: “It is not surprising that the savings ratio is rising, given UK labor shortages, minimum wage increases and subdued inflation, combined with low GDP and consumer sentiment. These factors will help consumers save more and pay down unsecured debt that has risen in the last few years.
“However, this comes despite falling annual percentage rates (APRs). Ring-fencing legislation in January has forced banks such as HSBC to move billions in deposits into the mortgage lending sector, leading to margin compression for mortgage providers. To stay competitive, banks have had to reduce APRs for depositors.”
GlobalData’s 2019 Banking and Payments Survey found that savings APRs for all products had on average fallen 0.3% in September 2019 from the winter of 2018. The worst fall coming from two-year, fixed rate bonds, declining 0.6% in just nine months.
Long adds: “This means consumers are receiving a worse deal from savings providers, despite banks gaining through higher retail deposits.
“Uncertainty over Brexit has also led some investors to transfer funds in stocks and shares individual savings accounts (ISAs) over to lower-risk cash ISAs. This has prompted a small revival of cash ISA deposits, growing by £22bn between October 2017 and August 2019, mostly around the April tax year. This is still below sight deposit growth of £64 in the same period.”
Cash ISA deposit growth is expected to slow in the long term once greater clarity over Brexit leads consumers to reinvest in the stock market.
Long concludes: “However, this could take at least a year as the government still has to agree a trade deal with the EU.”