According to the Bank of England (BoE) families are saving more now than they have for the last twenty years.
This is the first year since modern records began that families have put more into deposit accounts (Â£24 billion), than they took out in loans (Â£20 billion).
In a Telegraph report a senior economist with CEBR said “Higher unemployment and increased risk aversion mean we will have higher savings as households rebalance their finances.”
The Office for National Statistics mirrored this by showing that overall savings increased to 7% from 2% last year. The overall savings also includes pensions and investments as well as ISAs.
Savings rates are now down to about 3% from 5% just before the recession took hold, but the BoE does say that this is a good deal when compared to the BoE rate of 0.5%.
With household budgets being squeezed by the combined forces of the Treasury, employers and prices there may still come a time when even the reduced debt that is left becomes unaffordable to many. Especially if the Monetary Policy Committee are forced to increase bank rates.
Increased saving obviously equates to reduced spending, which will not help the high street in these straitened times. There is also the question of what the banks are likely to do with the extra cash in their coffers as they are unlikely to just leave it there. Are they going to lend it out to businesses which are likely to be struggling in a climate of reduced spending? Are they going to plough it into the markets for a return? Or will they buy government debt or even gold?