UK Savings Rates and Debt Repayments Soar in 2020 – What’s on the Horizon?
Consumers have been cutting down on expenses due to the pandemic; and in turn, they’ve been saving more money. What’s more, people been paying down credit cards and loans at impressive rates, reaching record numbers.
Facts and figures
Official figures form the Bank of England (BoE) indicate that repayments of £16.6bn have been made on credit cards, loans, student borrowing and car financing during 2020. This represents the most repaid debt in 27 years and the first annual net reduction in 9 years. Consumers had accumulated £13.2bn of extra debt in 2019, this is in stark contrast with the £7.2bn repaid in the peak month of April 2020 during the first COVID lockdown. Business have clearly been impacted by consumers’ lack of spending. The amount of money companies have been forced to take out in bank loans to keep their businesses alive has soared to £43.3bn. What’s more, the capital raised from selling stocks and bonds also increased significantly to £52.6bn.
What are the driving factors?
Most people stopped commuting to work and didn’t have as many options for spending money once the pandemic touched down and lockdowns were enforced. Consumers also spent less during holidays, including traveling abroad, restaurants, gifts, and so on. BoE confirmed that annual consumer credit growth decreased by -7.5%, the weakest ever. People seem to have opted to hold on to their cash amid the pandemic.
An uncertain 2021
Chancellor Rishi Sunak has suggested that people having saved so much money could actually help jump start the economy once lockdown measures ease. He believes that consumer spending could explode once the country reopens. Official figures show the UK’s household savings soared to a record high of 27% in June 2020 and has stayed at similar levels ever since. Even mortgages are faring well. A large number of mortgage approvals were made in 2020, which is promising given recent drops in housing prices.
Nevertheless, these figures do not take into account the millions who lost their jobs during the pandemic. Many people have fallen behind on rent and bills, and poverty levels are expected to rise. Around 2 million families are struggling to make ends meet. So while many households may be in a stronger position now than they were compared to the onset of the crisis, fragility within the economy remains.