By Mark Fairlie.
Online tradespeople quote finding service MyJobQuote.co.uk has released the results of a survey of 2,561 homeowners which has revealed that nearly one-third of Brits have no money saved up for a rainy day. The primary reasons given for the lack of household savings was “not having enough money” and a belief that there will be no emergency in the near future requiring such capital expenditure.
Of the remaining 69% with savings, the amount they had put away was £1,800 however three-fifths of those reported that they had less than £1,500 set aside for unexpected bills. If they had to spend money in an emergency, a fifth of respondents said that they would be able to pay what was due from their current account, 14% would consider a short-term loan, and 40% had “no contingency plans”.
Following the Great Recession of 2008-2009, people’s real wages have dropped by 7.2%, according to BBC News. What that means is that, although the amount of money people have been paid has risen every year, the inflation rate has risen faster meaning that there’s less spare money at the end of the month for people to save. According to FullFacts, real income enjoyed by the self-employed has also fallen over this period.
Research from the Institute for Fiscal Studies has shown that, had wages grown at the rate they did between 1998 and 2008, the average UK employee would be paid £3,500 more each year. In fact, the squeeze on incomes has meant that, since 2016 and for the first time since records began, Britons have spent more than they earned (source: BBC News). They have financed that spending through increased debt so that they can keep up with the cost of living.
At the same time as there has been much slower-than-desired growth in wages, the amount offered to savers has been at record lows. The Bank of England sets the base rate – the base rate is the level at which money is lent to people and companies. When a saver deposits his or her money with a financial institution, the financial institution considers it as a loan to them and they fix the level of interest they pay that saver on the level of the base rate.
Lower interest rates on savings disincentivise customers from saving because, if the level of interest they receive on their savings is lower than the rate of inflation, what they can buy with their savings get smaller and smaller each year.
Prospects for savers do not look much different from the last ten years. According to Ian McCafferty, aprevious member of the Monetary Policy Committee, the board of the Bank of England which sets the base rates, interest rates will stay low for the next 20 years. He added, in an interview with the Guardian, that savers should get used to interest rates being “significantly” lower than the 5% average enjoyed by savers before the Great Recession.
However, Steven Kilfedder, production manager at ECA International, speaking to City AM said that his firm expects wage growth of 3% in 2019 against an average inflation rate of 2.2% meaning that people will be better off as a result.