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UK household bank savings jump by record amount in May

Valentina Romei in London

UK households amassed bank savings by a record amount in May, which could help the economy bounce back from the pandemic.

Households added a record £25.6bn of bank deposits in May, following strong increases of £14.3bn in March and £16.7bn in April, according to data released by the Bank of England.

This is the largest gain since records began in 1997 and well above the six-month average to February of £5bn. Households saved money as consumers’ spending was limited during the lockdown and incomes were supported by the job retention schemes.

While high household deposits can be considered as a sign of pent-up demand that could help economic recovery, some economists warn that consumers might continue to save rather than spend due to high levels of uncertainty.

“If fear and uncertainty linger then enforced savings will turn to precautionary savings,” said Neil Shearing, group chief economist at Capital Economics.

“In this situation, demand will remain depressed and there will be a need for additional stimulus once the time-limited support programmes that were announced by governments in the early days of the pandemic start to expire.”

Last week, Rishi Sunak, the chancellor, said that he would wait to see whether consumers would spend or continue to save, before deciding whether a fiscal stimulus — such as a temporary cut in value added tax — was needed to revive economic growth.

Other data released on Monday highlighted that consumers are not spending. Consumers avoided borrowing, with net credit shrinking by £4.6bn in May and the annual rate falling 3 per cent, the weakest since the series began in 1994.

Despite the reopening of the housing market on May 13, the number of mortgage approvals for house purchases fell to a low last month at 9,300. The figure is almost 90 per cent below the pre-virus level in February and around a third of its trough during the financial crisis in 2008.