The amount of money being taken out of savings accounts in Britain is increasing at the quickest rate in modern history, the Bank of England has disclosed.
The Bank conducted a study of the savings landscape in the last year and found that a total of £23 billion had been taken out of peoples savings accounts and placed into current ones, representing an average of £900 per home in the UK.
Worryingly, the study seems to provide clear and compelling evidence that the cost of living in Britain is a genuine problem that is having real effects on the financial standing of the public. Rising prices in all areas of consumer spending have provoked a multitude of politicians to brand the current situation a ‘cost of living crisis’, with Ed Miliband arguing that a squeeze had occurred that had broken the link between economic growth and actual wages in the country.
The study also indicated that the amount of money put into cash ISA’s also dropped by 4.7% whilst the usage of current accounts rose by 11%, representing a figure of £70 billion in total.
Market commentators have identified these statistics as the largest transfer of money between accounts since the economic downturn back in the 70’s whilst highlighting that this was a forced occurrence and not one done optionally.
Later on this week, Chancellor of the Exchequer, George Osborne, will release his Autumn Statement that will look at different strategies to combat the ever rising financial burdens being placed on consumer households.
The biggest issue is the devaluation of their wages in actual terms, with inflation and rising prices meaning that people can do less with their wages than they have done before. When you factor in how slow the average wage is rising each year compared to prices and you begin to understand allegations about a future poverty developing if the issue is left unadressed.
Is growth worth poverty?
Many leading economists have identified their belief that consumer spending of their savings has significantly contributed towards recent positive economic figures.
They have argued that growth has benefited immeasurably, with it estimated that it was the primary reason for the large increase in gross domestic product in the third quarter of this year. Furthermore, this trend is expected to continue with the upcoming quarters figures, indicating that there is far more substance than speculation surrounding these claims.
The current state of interest rates means that the savings market is highly unattractive to people in the UK at the moment, meaning that less money is being set aside at the expense of the economy.
And with less money being put into savings, more money being taken, and prices rising, the danger of a real squeeze seems increasingly likely unless something is done to help consumers.
Recent reports have indicated that a million people are set to turn to Payday loans this year to fund Christmas, with the festive season a particularly dangerous time for people to fall into debt.
Simon Ward, chief economist at Henderson Global Investors highlighted that another £20 billion of savings money had been used as spending money, indicating that this problem needed addressing urgently.
“Consumer strength usually reflects increased borrowing but this hasn’t been the key factor recently,” he said.
“Instead, households have been running down their savings accounts balances, probably in reaction to the pathetic interest rates now on offer.
“Increased spending is lifting growth and incomes, and money is flowing back to other households, in a virtuous circle”.