UK savings fall to lowest level in four decades

Savers have been withdrawing money from their accounts at the fastest rate in nearly 40 years, according to Bank of England figures.

A total of £23 billion were withdrawn from long-term savings over the past 12 months, which was equivalent to £900 for every household in the country.

The cash, which in many cases was earning little more than 1 per cent was either spent or moved to easy-access current accounts. According to the bank’s figures, the record low interest rates had convinced many to give up on the prospect of meaningful returns on their nest eggs.

According to commentators, though, the withdrawals might also have helped power the UK’s economic recovery, with much of the cash being spent on consumer goods.

They say the figures are representative of a reversal in a trend to hold on to money which started in 2007, when the credit crisis hit the economy.

The year to Oct 2012 saw £24.8  billion in addition to savings accounts overall, however, long-term savings declined by almost the same amount, a 4.7 per cent decline, in the year to October 2013.

Meanwhile, cash in consumers’ pockets or instant access accounts surged by 11.2 per cent.

Commentators said last night that the figures would raise fresh fears about the sustainability of the recovery, as they urged the chancellor to use his Autumn Statement on Thursday to encourage saving for the future. 

The Autumn Statement offers an update on the plans of the UK government for the economy based on the latest forecasts from the Office for Budget Responsibility (OBR).

According to sources, instead of providing individuals with incentives to put more aside, George Osborne might cap the maximum they could store in tax-free ISAs.

The Telegraph newspaper, quoted Ros Altman, a former Downing Street policy adviser, as saying the figures were desperately worrying. He added, people were stopping saving for the long term because all the policies of the last few years meant you would be a mug to save.

He added, the problem was that no economy could thrive in the long run without people saving. He added the economy could not be run on borrowing and debt, one needed saving and investment for the future.

He said, if one just withdrew money and spent one was talking about a recipe for long-term economic decline.

The paper quoted Tom McPhail of Hargreaves Lansdown, a fund manager, as saying, Â the problem the Treasury had was that they wanted consumers to spend, and at the same time taxing accumulated savings would look quite attractive in view of the state of the public finances.

He added, that was the reason why they had continually nibbled away at pensions and he just hoped that they left pensions alone in the Autumn Statement.