The outlook for household savings is important in determining the near-term path of the economy. Household-level microdata is a valuable complement to the national accounts, allowing us to better understand the current state of households’ savings at a granular level and to determine its implications for future consumption.
The Bank of England conducts a biannual household survey with NMG Consulting to obtain data on households’ financial circumstances and their economic expectations. The most recent wave of this survey was conducted between 24 August and 17 September and covered a nationally representative sample of over 6,000 British households.
The results from this latest survey suggest that on an inflation-adjusted basis, the amount households set aside in savings each month is similar to before the pandemic across the savings distribution (Chart 1). The share of respondents who did not put aside any savings from their monthly income has fallen compared to two years ago, when cost-of-living pressures were acute and many households funded extra costs by saving less. At the same time, fewer households saved as much each month as during the pandemic, when the saving rate was exceptionally high.
Deposit stocks, adjusted for inflation, also look similar to 2019 levels (Chart 2). Households accumulated large deposits during the pandemic, especially those with middle and high incomes. These household groups responded to the cost-of-living shock partly by drawing on their deposits. Overall, the effect of these two shocks on deposits appear to have broadly offset one another. This suggests that there is currently no excess stock of household savings that could fund higher expenditure in the near term. However, households do not have a saving shortfall that they might try to rebuild, which would weigh on consumption by keeping the saving rate high.
Chart 1: Distribution of monthly savings (inflation-adjusted and log scale)
Chart 2: Distribution of household deposits (inflation-adjusted and log scale)
Footnotes
- Notes: Monthly savings and nominal bank deposits are deflated using the consumption deflator. The distribution is smoothed using a kernel density estimate.
- Sources: Bank of England/NMG Survey of Household Finances, ONS and Bank calculations.
In contrast to aggregate statistics, the household-level data allows us to see what is happening to deposit levels for the median household. As shown in Chart 3, the survey data suggest that median deposits fell through 2022, as the aggregate (and therefore mean average) continued to increase, and it subsequently recovered by more. This is likely to be because as an aggregate measure, the change in deposit levels of low savers has little effect on the total stock of deposits, which is skewed towards wealthier households. Understanding changes in saving levels in different parts of the income distribution can help inform the outlook for consumption – consumption among low-income households tends to respond more strongly to shocks than among high-income households (Bunn et al (2018)).
Chart 3: Cumulative growth of national accounts versus survey-reported deposits since 2014
Footnotes
- Notes: Aggregate deposits represent quarterly amounts outstanding of monetary financial institutions’ sterling M4 liabilities to household sector, seasonally adjusted.
- Sources: Bank of England/NMG Survey of Household Finances, Bank of England Money and Credit data and Bank calculations.
This post was prepared with the help of James Driver and Christoph Herler.
This analysis was presented to the Monetary Policy Committee during the November 2024 policy round.
We have published Bank of England/NMG Survey of Household Finances data from 2004 to 2024.
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