UK Savings Ratio Reaches 5.6%

The recent figures published by the Bank of England show that an average Brit is now saving more than an average Japanese does, which fact has been registered for the first time in 30 years and has been explained by the difficult economic situation caused by the credit crunch. Official figures show that the proportion of household income that is being saved rather than spent – also known as the savings ratio – has reached 5.6% since the beginning of the economic downturn. Economists believe that UK consumers choose to save their hard-earned money rather than spend them because they are concerned with falling house prices and growing rate of unemployment. According to Danny Gabay, director of London-based finance consulting firm Fathom, the fact that Brits used to spend more that they could afford contributed to the development of the economic crunch to some extent. That is why people are now taking a more cautious approach towards spending, which might bring about the only good result of the credit crunch - certain countries moving back to a surplus. Interestingly, the Japanese are now saving less that the Brits do, says Mr. Gabay. His analysis shows that an average Japanese saves less than 5% of their income despite the fact that the savings ratio in the country used to be higher than in the UK since 1970’s. The change in the attitude of Brits towards consuming was highlighted in the report published by the Bank of England last Friday. As we have already reported, the report showed a £7 billion injection in mortgage equity in the 2nd quarter of this year, which also speaks in favor of the saving practice, which is highly popular with the Brits these days. Still, the savings ratio has not reached its 8% long-run average, says Ms. Vicky Redwood, economist at the London branch of Capital Economics. She says that the Brits are expected to save even more in the near future with the savings ratio hitting double-digits by the end of the credit crunch.

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