Whatever happened to savers and the savings ratio?

A feature of the credit crunch era has been the fall and some would say plummet in quite a range of interest-rates and bond yields. This opened with central banks cutting official short-term interest-rates heavily in response to the initial impact with the Bank of England for example trimming around 4% off its Bank Rate to reduce it to 0.5%. If we go to market rates the drop was even larger because it is often forgotten now that one-year interest-rates in the UK rose to 7% for around a year or so as the credit crunch built up in what was a last hurrah of sorts for savers. Next central banks moved to reduce bond yields via purchases of sovereign bonds via QE ( Quantitative Easing) programmes. In the UK this was followed by some Bank of England rhetoric heading towards the First World War pictures of Lord Kitchener saying your country needs you.

Here is Bank of England Deputy Governor Charlie Bean from September 2010.

“What we’re trying to do by our policy is encourage more spending. Ideally we’d like to see that in the form of more business spending, but part of the mechanism … is having more household spending, so in the short-term we want to see households not saving more but spending more’.

Our Charlie was keen to point out that this was a temporary situation.

“It’s very much swings and roundabouts. At the current juncture, savers might be suffering as a result of bank rate being at low levels, but there will be times in the future — as there have been times in the past — when they will be doing very well.

Mr.Bean was displaying his usual forecasting accuracy here as of course savers have seen only swings and no roundabouts as the Bank Rate got cut even further to 0.25% and the £79.6 billion of the Term Funding Scheme means that banks rarely have to compete for their deposits. This next bit may put savers teeth on edge.

“Savers shouldn’t see themselves as being uniquely hit by this. A lot of people are suffering during this downturn … Savers shouldn’t necessarily expect to be able to live just off their income in times when interest rates are low. It may make sense for them to eat into their capital a bit.”

In May 2014 Charlie was at the same game according to the Financial Times.

BoE’s Charlie Bean expects 3% interest rate within 5 years

There is little sign of that so far although of course Sir Charlie is unlikely to be bothered much with his index-linked pension worth around £4 million if I recall correctly plus his role at the Office for Budget Responsibility.

House prices

I add this in because the UK saw an establishment move to get them back into buying houses. This involved subsidies such as the Bank of England starting the Funding for Lending Scheme in the summer of 2013 to reduce mortgage rates ( by around 1% initially then up to 2%) which continues with the Term Funding Scheme. Also there was the Help to Buy Scheme of the government. I raise these because why would you save when all you have to do is buy a house and the price accelerates into the stratosphere?

The picture on saving gets complex here. Some may save for a deposit but of course the official pressure for larger deposits soon faded. Also the net worth gains are the equivalent of saving in theoretical terms at least but only apply to some and make first time buyers poorer. Also care is needed with net worth gains as people can hardly withdraw them en masse and what goes up can come down. Furthermore there are regional differences here as for example the gains are by far the largest in London which leads to a clear irony as official regional policy is supposed to be spreading wealth, funds and money out of London.

There is also the issue of rents as those affected here have no house price gains to give them theoretical wealth. However the impact of the fact that real wages are still below the credit crunch peak has meant that rents have increasingly become reported as a burden. So the chance to save may be treated with a wry smile by those in Generation rent especially if they are repaying Student Loans.

Share Prices

This is a by now familiar situation. If we skip for a moment the issue of whether it involves an investment or saving as it is mostly both we find yet another side effect of central bank action. In spite of the recent impact of the North Korea situation stock markets are mostly at or near all time highs. The UK FTSE 100 is still around 7300 which is good for existing shareholders but perhaps not so good for those planning to save.

Number Crunching

There are various ways of looking at the state of play or rather as to what the state of play was as we are at best usually a few months behind events. From the Financial Times at the end of June.

UK households have responded to a tight squeeze on incomes from rising inflation, taxes and falling wages by saving less than at any time in at least 50 years. According to new figures from the Office for National Statistics, 1.7 per cent of income was left unspent in the first quarter of 2017, the lowest savings ratio since comparable records began in 1963.

This compares to what?

The savings ratio has averaged 9.2 per cent of disposable income over the past 54 years,

Some of the move was supposed to be temporary which poses its own question but if we move onto July was added to by this.

In Quarter 1 2017, the households and NPISH saving ratio on a cash basis fell to negative 4.8%, which implies that households and NPISH spent more than they earned in income during the quarter.

The above number is a new one which excludes “imputed” numbers a trend I hope will spread further across our official statistics. It also came with a troubling reminder.

This is the lowest quarterly saving ratio on a cash basis since Quarter 1 2008, when it was negative 6.7%.

As they say on the BBC’s Question of Sport television programme, what happened next?

The United States

We in the UK are not entirely alone as this from the Financial Times Alphaville section a week ago points out.

Newly revised data from the Bureau of Economic Analysis show that American consumers have spent the past two years embracing option 2. The average American now saves about 35 per cent less than in 2015……….Not since the beginning of 2008 have Americans saved so little — and that’s before accounting for inflation.


One of the features of the credit crunch was that central banks changed balance between savers and debtors massively in the latter’s favour. Measure after measure has been applied and along this road the claims of “temporary” have looked ever more permanent. Therefore it is hardly a surprise that savings seem to be out of favour just as it is really no surprise that unsecured credit has been booming. It is after all official policy albeit one which is only confessed to in back corridors and in the shadows. After all look at the central bank panic when inflation fell to ~0% and gave savers some relief relative to inflation. If we consider inflation there has been another campaign going on as measures exclude the asset prices that central banks try to push higher. Fears of bank deposits being confiscated will only add to all of this.

Meanwhile as we find so often the numbers are unreliable. In addition to the revisions above from the US I note that yesterday Ireland revised its savings ratio lower and the UK reshuffled its definitions a couple of years or so ago. I do not know whether to laugh or cry at the view that the changed would boost the numbers?! I doubt the ch-ch-changes are entirely a statistical illusion but the scale may be, aren’t you glad that is clear? We are left mulling what is saving? What is investment?

But we travel a road where many cheerleaders for central bank actions now want us to panic over an entirely predictable consequence. Or to put it another way that poor battered can that was kicked into the future trips us up every now and then.




25 thoughts on “Whatever happened to savers and the savings ratio?

      • First encountered up a Peruvian mountainside when travelling with some Aussies! My favourite is One Country “So don’t call, me, the tune, I will walk away” sums up my life philosophy!

        The more they inflate the bubble, the bigger will be the burst – it shows a fundamental failure to understand that housing is an asset market when the LSE thinks tax cuts will boost transactions. In an asset market, transactions stop when the prices get too high. I was interested to see on Bloomberg that one State board Governor of the fed says that it is time for the Fed to cut its asset base – ie: flog off all those bonds it has been buying – which needs copying over here.

  1. Great article as ever Shaun.

    This shows how isolated the BOE are in their ivory towers. Early on in the crisis the financial repression they imposed caused people to save harder.

    Interest rates should’ve been raised earlier, zombie companies and households go under, and the hordes of pensioners with savings start to spend.

    Instead we’ve had peoples earnings/savings destroyed by inflation, and savings whittled away just to exist.

    Shame on the BOE.

  2. Hi Shaun
    You have listed so many reasons why saving is declining.
    I believe the public are not as prudent as they have been in the past.
    Expensive contracts on mobile pones,Sky TV,Netflix etc,not to mention new car are considered essential.
    The government admitting savers had been the losers since the machinations of the BOE issued a Investment Guaranteed Growth Bond paying 2.2% taxable with a maximum investment of £3,000 .Comments invited.

    • I have blogged before an a similar theme to you, i term
      the problem as “Unaffordable neccessities”.
      I remember well that my late Mother in law would spend
      her savings interest on holidays, I can only pay the milk
      bill with mine! Before I get the baby boomer bashers
      upset, I do understand why we are in this situation, my
      concerns are for my Grandchildren but here is a question,
      how many years will it be before IR exceed 1%?!

      • For £15-25 a month you can get a phone with access to pretty much every newspaper on the planet (to varying degrees). Back when i were a lad a similar amount would be spent per month on the daily newspaper by people at work to fill the breaks or give them something to read on the way to work … and they had a landline phone bill on top of this to pay.

        Netflix is £6 a month, and stops people going out spending.

        These 2 items aren’t the reason for people not saving. IMHO its quite simply no interest on savings and the BOE showing they’ve got the back of those in debt and are in the process of debasing the currency.

        Besides didn’t the savings rates crash after the leave vote, presumably lots of foreigners taking their savings out and putting them elsewhere??

          • Hi Pavlaki

            It is revealing I think that a lot of deals can be found for the printed press.


            For half price Financial Times and FT Weekend retail vouchers, please click here

            3:29 PM – 9 Aug 2017


  3. I was recently watching a political debate comment by TOP in NZ. The claimed that housing taxes were lowest in NZ of the whole world, and because of this houses in NZ were the most expensive in real terms. This distorted investment/saving away from productive business. ( I don’t know about the veracity of such claims) Their solution is to tax the BTL brigade just like any other income.

    In Britain, the BTL brigade have also become a sacred cow that mainstream politicians cannot hurt.

    An economy based on selling houses to each other and monopoly style renting is crazy and very unfair on the currently young generation.

    • the BTL landlords solved several problems…..

      1, they replaced council housing

      2, they provided pension incomes

      3, they kept the asset prices high and saved the Banks

      high asset prices helped along with re-mortgaging to by stuff, holidays, cars , etc, and thus inflated the economy above the poor state is surely is.

      whats not to love?

      And if it goes right it all blows up on the other mans shift …..


      • LOL. BTL for DHSS costs more than council housing and it delivers substandard, frequently unhealthy, damp dumps.

        To hell with the bankster economy, copy Iceland !

    • BTL is treated like any other business by HMRC. Their profit is calculated by HMRC as income(rent) less expenses (mortgage, maintenance and repairs) the result, IF positive is taxed at the BTlers normal tax rate unless they have registered the property(ies) as a company in which case corporation tax is applied.

      Btl’ers are really in it for the long term capital gain in 20 years when the mortgage is paid off and they sell up and then get a shock from HMRC called capital gains demand.

      They are hardly protected.

  4. Viv Nicholson would be a central bank icon today.
    Borrow money inflate house prices beyond affordability create a nation of debt slaves sucker them in then reduce their wages and they will be so indebted they will feel powerless to do anything about it.
    Off shore most manufacturing so no jobs get 50% to go to University do away with grants let them borrow from those friendly bankers, with the earning power of their degree much reduced they will be forced to increase debt to levels they will need to work every hour without complaint or they will have to go into the rental market where the renter class will look after them with ever higher rents.
    There will be no final salary pensions just the lottery of a dc scheme so people will need to work till they drop.
    You can’t have capitalism without savings but these criminals have corrupted the financial and monetary system with cancerous debt that properly set interest rates are unaffordable.

    • Hi Private Fraser

      We often discuss on here a future described by the Dune series of novels. In that theme you are describing a Harkonnen style future ahead in line with the chill in the weather tonight.

      For younger readers Viv Nicholson was someone who won the pools and declared she would “spend, spend spend”……

    • “You can’t have capitalism without savings”

      Whilst one of the the definitions of capitalism is the accumulation of capital it is not the only one – activity undertaken for profit e.g. and a debt ridden society still fulfills this test. In any event the top 1% continue accumulating capital even now so you can have capitalism with debt as long as it’s the proletariat and not the bourgeoisie accumulating debt.

  5. Savers ratio! Are you kidding Shaun?

    Nope we are not savers anymore, there is no purpose or reason to save, the authorities have deemed it thus.

    I spend 8% of my net income on rent, I count myself lucky to be in such a position. Of course many baby boomers have no mortagage whatsoever and perhaps even and BTL portfolio.

    Saving really is for 1989, a concept of historical proportion. If you look at the price gouging that is everywhere promoted today, it is conferred via instant gratification and credit lines.

    Think Quick Quid…. how could you ever have forecast your boiler would fail or your car would breakdown. You don’t need to save for these events (they are so rare) just dial-up some more credit.

    As I said saving is last century.

    • Hi Paul

      You got me thinking about QuickQuid so I looked it up.

      “Representative Example: Amount of credit: £300 for 71 days. One total repayment of £470.40. Interest: £170.40. Interest rate: 292% pa (fixed). 1301.2% APR Representative. ”

      Bank Rate of 0.25% is annual and supposed to be some sort of anchor and yet.

      “Interest accrues at a daily rate of 0.80%”

      Get Charlie Bean on the phone….

  6. Great blog as always, Shaun.
    I was reading Thomas Piketty’s “Le capital au XXIe siècle” when I read your blog. It is, of course, also available in English translation. One of the few essential equations in his not very mathematical book is: ß=s x g, where ß is the ratio of the value of the capital stock to national income, s is the savings rate and g is the growth rate of national income. So for example, if the value of the capital stock were 6 times the value of national income, the savings rate were 12% and the growth rate were 2%, this would be consistent with the equation, which describes an equilibrium condition to which an economy would tend, since in the short term of course the capital stock is whatever it is. Piketty claims the capital-to-income ratio was always between three and six in the UK between 1970 and 2010.The scary thing is that the more the long-term savings rate is reduced, the more the long-term growth rate must be reduced. So if the UK savings rate remained at 1.7%, the long term growth rate would have to drop below 0.6% to ensure even a capital-to-income ratio of 3, which is about the lowest it has been in the last half century. The low interest rates that are supposed to have such a stimulative impact on growth in the short term could potentially have a pernicious impact in the long term.

    • And this would then feed through to lower inflation thereby enabling the Government to shoot itself one more time in the foot whilst making it easier to make a living form investments at lower return rates.

  7. There has been quite a lot of ink spilt recently about rising consumer credit AND the falling savings ratio. To me it’s no surprise – by definition they are concomittant.

    It is a long time since I looked at how the savings ratio is made up, but from memory, it adds debt repayment to what we would understand as actual saving in a deposit account say. So, if lots of debt is being extended, the savings ratio is reduced. It is only when credit extension falls and people pay more debt off than they raise does the savings ratio rise due to debt repayment.

    You will know more Shaun.

  8. “why would you save when all you have to do is buy a house and the price accelerates into the stratosphere?”

    1. A mate bought his house for £250,000 in 2009 and could only get £165,000 in 2014 so I don’t know about”stratosphere” when you’re looking at a £85,000/24£n nominal loss or a 45% loss adjusted for inflation and there were no structural problems with his house!!

    2.More recently another mate put his house up for sale and in spite of the house being quite presentable in 9 months he had only 3 visitors and 1 offer meaning he had to drop the sale price by 15% below the original ask price which would “easily realisible” according to the Estate Agent.

    You should be very sceptical of the numbes quoted by MSM….

    • ….and :

      3. It aint easy to get at your money when it’s tied up in bricks and mortar other than increasing your mortgage and then you’re just buying money.

      4. As I said, it’s not “stratosphere” so much as “bowels of the earth”!!

  9. “However the impact of the fact that real wages are still below the credit crunch peak has meant that rents have increasingly become reported as a burden.”

    I don’t think so, rents round my way kept going up from 2007 to 2009 and then collapsed and are currently at the same level as 2006!!

    “The UK FTSE 100 is still around 7300 which is good for existing shareholders but perhaps not so good for those planning to save.”

    Or is possibly good for those planning to save – you have assumed the Ftse 100 is at or near it’s peak – why? Where’s your evidence for such a suggestion? Of course there are other markets to look at – Ftse 250, Ftse350 small caps etc….

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