Rising savings ratio does not herald a return of thrift

The UK household savings ratio continues to move higher. But it is unlikely this heralds a return to consistent savings behaviour by consumers. Instead it reflects - in the short term at least - a decision to cut spending and repay existing debts rather than a deliberate decision to accumulate financial wealth by locking money away in occupational pensions and other long-term savings instruments. Ian King has a good piece on this in the Times today. The nominal rates of return on most savings accounts have collapsed because of the steep cut in policy interest rates and millions have lost confidence in the financial services industry.

“A study published yesterday by AT Kearney, the management consultancy, revealed that 90 per cent of UK households have less than £50,000 in financial assets — including their defined contribution pensions — and average financial wealth of just £7,000.”

New data on the UK shows that household expenditure growth rose 0.1 per cent, although remains 3.3 per cent lower than the third quarter of 2008. The savings ratio — the gap between household income and spending, which is often used to repay debts or add to savings — soared to 8.6 per cent between July and September, the highest level since 1998.

More here and here Thrifty families accused of prolonging the recession