On 29 June 2023, the Bank of England announced that in May, households had withdrawn £4.6 billion from bank and building society accounts net of savings, with the figure being the highest since records started.
However, May’s large withdrawal figures are not part of a long-running trend, but rather a breakaway from a period of heightened net savings that started during the coronavirus pandemic. For instance, in April, £3.7 billion was saved net of withdrawals.
Households who face elevated borrowing rates amidst the cost-of-living crisis are now dipping into their savings funds, setting a concerning precedent.
It is taking too long for the increases in interest rates to be passed on to savers
–Jeremy Hunt, Chancellor of the Exchequer
Richard Lane, Director of External Affairs at debt charity StepChange, stated that new Bank of England figures are the latest in a series of warnings that individuals are struggling to cope with the heightened cost of living.
Lane noted: “Cost pressures are everywhere and eroding people’s financial headroom, leaving them more vulnerable to harmful borrowing and problem debt.”
Of further concern is that May’s figure does not reflect household reactions to the imminent mortgage crunch caused by higher-than-expected inflation and pay growth, with the Resolution Foundation predicting that average annual mortgage repayments for those remortgaging next year are set to increase by £2,900.
Large net withdrawals from instant access accounts contributed to the record £4.6 billion figure, with effective rates of instant access accounts standing at 1.33% in May despite the current base rate being set at 5% by the Bank of England.
Jeremy Hunt, Chancellor of the Exchequer, said: “It is taking too long for the increases in interest rates to be passed on to savers”. MPs on the Treasury Committee have raised concerns that whilst banks are quick to pass on higher mortgage rates to borrowers, there has been a lag in raising rates on instant savings accounts.
The Treasury Select Committee Chair, Harriet Baldwin, further stated: “While other products are available to those who shop around, the measly easy access rates on offer lead us to conclude that loyal customers are being squeezed to bolster bank profit margins.”