UK consumers turn to saving as poor economic outlook saps confidence

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UK households are prioritising saving over spending amid concerns about the gloomy economic outlook, despite lower borrowing costs providing some relief, according to research that signals a potential drag on growth.

February was deemed a “good time to save” by a net 30 per cent of consumers, the same proportion as in January, data from research company GfK showed on Friday.

The figure is just shy of the 33 per cent post-financial crisis high and well above the minus 2 per cent average between 2008 and the end of 2020, before the cost of living crisis and a sharp rise in interest rates.

GfK’s separate overall consumer confidence index — a measure of how people view their personal finances and broader economic prospects — rose 2 percentage points to minus 20, helped by the Bank of England’s quarter-point rate cut earlier this month.

The survey was conducted in the first half of February, as concerns rose that poor economic growth and sticky inflation could trigger a period of “stagflation” and businesses warned of higher prices and job cuts following tax rises in the autumn Budget.

Official data published on Wednesday showed that inflation rose more than expected to a 10-month high of 3 per cent in January, while the economy barely grew in the second half of 2024.

Neil Bellamy, consumer insights director at NielsenIQ/GfK, said the findings pointed to people “putting money away for a rainy day [because] they don’t have much confidence in the way the economy is going”.

Many households were saving rather than spending “because they think there could be more trouble ahead”, meaning “less money in the economy”, he added.

Line chart of Net balance between proportion reporting this is a good or bad time to save, % showing Saving intentions of UK consumers are historically high

The GfK sub-index tracking views of the general economic situation rose 3 points on the month but was still deeply negative at minus 31.

The survey suggests that the gap between strong pay growth and weak consumer spending could continue, limiting prospects for economic growth.

Official data on Tuesday showed that wages adjusted for inflation rose at the fastest pace since 2021 in the three months to December. But household spending per capita fell in the third quarter of 2024, contributing to weak GDP growth.

The sub-index tracking the share of consumers saying it was a good time to make big purchases rose three points, extending the recovery from lows seen at the height of the cost of living crisis but was still negative at minus 17. In the six years before the pandemic, the average reading was positive.

The biggest single improvement was in how consumers saw their personal finances for the coming year, with an increase of four points to plus two taking the measure out of negative territory.

Bellamy said the BoE’s decision to cut interest rates from 4.75 per cent to 4.5 per cent this month would “have brightened the mood for some people” such as mortgage holders and prospective homebuyers.

But he added that “the majority are still struggling with a cost of living crisis that is far from over. Prices are still rising above the BoE’s target; gas and electricity bills remain a challenge for many households.”

BoE rate-setter Catherine Mann told the Financial Times that slowing consumer demand was why she voted for a jumbo half-point cut at the central bank’s meeting on February 6.

“We’ve observed rising real incomes for quite some time and with rising real incomes, consumption should be more robust. I thought it was going to happen last year. I was talking about savings being dry powder for consumption. That has not materialised,” she said in an interview.