UK consumers continue accumulating excess savings in October

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Britons continued to display caution last month, adding to their stash of excess savings, although the opposite was true of corporates, the latest money and credit data from the Bank of England appeared to show.
Households’ total liquid assets, defined as their deposits with banks and building societies, grew by £9.4bn in September, which was down from £9.9bn during the previous month but ahead of an average net flow of £8.9bn between April and August 2021.

According to Samuel Tombs, chief UK economist at Pantheon Macroeconomics, that saw households’ excess savings – the additional amount saved since the pandemic began over the previous £4.8B monthly average – rise to 8.7% of 2020 GDP.

“Households remained unwilling in September to draw on the savings they have accumulated since the pandemic began, underlining the downside risks to the OBR’s new forecasts, which assume a period of below-normal saving next year,” Tombs said.

Nevertheless, Pantheon too expected households to save a smaller fraction of their incomes going forwards.

Mortgage lending meanwhile hit £9.5bn (consensus: £6.0bn) in September, the highest tally since June 2021, driven by borrowing ahead of the complete tapering off of lower stamp duty from October, Bank said.

Approvals for home purchases came in at 72,600 for September (consensus: 69,000), their lowest level since July 2020 and down from 74,200 in August.

Tombs expected rising mortgage rates to sap house purchase demand in 2022, although he conceded that fewer work-related expenditures meant that housing costs could absorb a greater share of incomes without causing problems.

In parallel, net consumer credit increased by £0.2bn September (consensus: £0.6bn), as individuals borrowed £0.6bn more in credit card debt – the most since July 2020 – but repaid £0.4bn of “other” forms of consumer credit, such as car dealership finance and personal loans.

The annual rate of growth for all consumer credit remained “weak”, Bank said, although it did rise from -2.4% in August to -1.8% for September.

UK non-financial businesses meanwhile repaid £0.4bn of loans to lenders during September, although small and medium-sized enterprises repaid £1.4bn – the largest monthly amount on record.

However, Tombs said those repayments actually showed confidence on the part of corporates, as many had raised excessive liquidity in 2020 due to the risks posed by the pandemic.

“The healthy state of businesses’ balance sheets-in aggregate, at least-together with solid profit margins and the incentives provided by the Chancellor’s “super-deduction” policy suggest that capex should rebound over the coming quarters.”

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