Savings shock: Over £4.5bn more withdrawn from UK accounts than deposited in May

There was £4.6bn more withdrawn than paid into bank and building society accounts during May according to the Bank of England's monthly credit statistics.

Industry figures were quick pointed the finger at the rising cost of living, including food prices and mortgage payments.

Ian Cook, financial planner at Quilter said living standards in the UK continued to be hampered by inflation. He added that despite positive growth in real household disposable incomes during the last three months of 2022, things "crashed back to Earth with a fall of 0.8 per cent between January and March this year.

"This was in the face of falling energy prices and the cost of living crisis meant to be showing signs of easing. Unfortunately, households are in it for the long run with inflation refusing to budge from recent historic highs, and rising interest rates failing to bring it down."

Mortgage rises to increase pain

He said interest rate increases would increase the pain for consumers, particularly those with a mortgage whose fixed rate deal may soon be coming to an end.

"Worryingly, however, the household savings ratio also fell in the last quarter and according to the ONS households experienced simultaneous withdrawals from their deposit accounts and negative secured loans for the first time ever. The safety buffer built up during the pandemic is slowly being chiselled away."

“This all comes at a time when the tax burden is showing no sign of abating either. As the data points out the downwards pressure on savings ratios is partially due to rise in taxes on income of £5.4bn. This pressure on tax is only going to increase as the ‘fiscal drag’ continues to hit and more and more people are drawn into paying higher levels of tax.

Pensions raid

Dean Butler, managing Director for Retail at Standard Life, part of Phoenix Group said UK households had been "battered" by spiralling prices and rising interest rates for over a year now, and its worrying but not surprising to see customers withdraw the record amount of savings in May.

He said savings levels had been an issue for some while, with 34 per cent of adults having either no savings, or less than £1000, in a savings account.

"Many have no choice but to use their savings - or even their pension savings if they’re above the minimum pension age - to cover day to day expenses at the moment, and it’s certainly a better option than getting into high-interest debt or, in the worst case, using an illegal lender. However, if at all possible we urge people to maintain a level of rainy day savings for protection against those unexpected costs that come up in life, and to leave enough in their pension pot for the rest of their retirement. Any savings buffer is better than none."

Splashing the cash

Danni Hewson, head of financial analysis at AJ Bell said:" It will come as absolutely no surprise to anyone that cash-strapped households lucky enough to have a savings pot left have been raiding them over the last month. It’s how so many people have still been able to splash out on summer frocks at H&M or long, lovely cruises boosting business for Carnival and Saga.

“Those not afflicted by the great mortgage squeeze will be counting their blessings. Those staring at the clock counting down to the day their fixed rate ends will be counting their pennies.

“With no respite expected in the mid-term, this is a cost-of-living crisis going off on a new tangent and its impact will be felt in different ways and by different businesses."