Latest official data shows average weekly household spending in 2017 was £554.20 – the highest level since 2006
However, in 2016 the UK household savings ratio dropped to just 7%, the lowest level in 10 years – partly as a result of the Bank of England cutting the base rate to 0.25%
In 2016 the average member contribution to a defined contribution pension scheme was just 1% - DOWN from 1.5% in 2015
Tom Selby, senior analyst at AJ Bell, comments:
“While rising consumer spending might be good for the UK economy in the short-term, it risks storing up serious long-term problems – particularly if it is driven by cheap loans and rising consumer debt.
“In slashing the base rate to just 0.25% in the wake of the EU referendum result, the Bank of England applied an emergency jolt to an economy that risked limping into recession. However, banks and building societies inevitably slashed cash ISA and current account rates in response, reducing the incentive for savers to hold onto their money.
“And it’s not just short-term saving that takes a back seat to spending today. The reason automatic enrolment was introduced was to reverse an alarming decline in retirement savings rates in the UK. Even as recently as 2016, defined contribution savers were, on average, putting away just 1% of their salary – a reduction from the 1.5% level seen in 2015.
“As auto-enrolment rolls out and minimum contributions rise to 8% of banded earnings in 2019, the impact on the wider economy will be profound. Provided people stay in their pension rather than opting out, auto-enrolment could well be the start of a broader societal shift towards an economy where people spend less and save more.
“However, this is not a given and the shift towards higher minimum contributions – potentially above the level of 8% set out in legislation – could be painful.”