Collapse in savings points to a very rough ride

Karen Ward from HSBC flagged this quite startling new figure for the UK savings ratio in her excellent talk on the UK economy at the London Conference on Friday. According to the Guardian, “Consumers are running down their savings to maintain spending, with the household saving ratio more than halving from 3% to 1.1%, the lowest since 1959.”

This could help to explain why there was a surge in retail sales last month at the same time as new survey data indicated a collapse in consumer confidence!

In the short term people are simply having to eat into their savings to meet essential utility, transport and other bills even though there are some pretty decent interest rates on offer from the banks and building societies who are desperate to attract fresh supplies of savings deposits.

But there will come a time when household spending in the UK must retrench - especially if Mervyn King is right in that 2008 and 2009 will be years when the normal expected rise in real living standards simply does not materialise.

We cannot forget the debt overhang .... the Telegraphr reported this today

“Families in the UK now owe a record 173pc of their incomes in debts, official figures have shown. The ratio of debt to income is higher than any other country in the Group of Seven leading industrialised economies, and is sharply higher than the 129pc of incomes it was five years ago.”

Still - the savings ratio could be worse - it has certainly been lower in the United States!

More here from the Times and also the Telegraph