Brits are spending less and are diverting more of their cash towards savings despite a rise in income, a recent report has shown.
Figures from a survey by the Centre for Economics and Business Research and Asda show that despite a 14 per cent increase in disposable income for the average household during Q2 compared to a year earlier, consumption was down by 0.3 per cent during the same timeframe.
This suggests that households are using spare cash to top up the savings depleted during the cost-of-living crisis. The uptick in savings comes as disposable income grew to £245 per week in July, the highest figure since March 2021.
Whilst all age groups are expected to witness further improvements in spending power as result of income growth continuing to outpace inflation, some groups are more insulated from volatility than others.
Households above 65 recorded the strongest disposable growth in July and their disposable income now sits above the UK average. Unlike working age households, older households are less likely to be exposed to the impact the volatile job market has on disposable income, and benefit from their state pensions being locked.
Reacting to this month’s Income Tracker, Sam Miley, Managing Economist and Forecasting Lead at Cebr, said, “While household spending power has continued to grow, consumption has reduced within the same timeframe. This reflects the trend of households spending less and instead diverting more of their disposable income towards savings. Earnings growth continues to outpace inflation, so further improvements in discretionary income are expected across all age groups and other demographics."
The figures suggest that households are replenishing their savings rather than using improvements in spending power to increase their retail purchases. According to the Office for National Statistics, retail sales rose by only 0.5 per cent in July, below analysts’ forecasts but up from a contraction of 0.9 per cent in the previous month. Sales are 0.8 per cent lower compared with those before the pandemic.
