Gross national savings rate

Gross national saving is the sum of private, public and foreign saving, which is the total amount of a national income minus aggregate consumption and is indicative of funds available for domestic and foreign investment. Savings is therefore the inverse of consumption and so depends on changes in household, government and private consumption. Developments in the savings rate depend on economic growth, demography and the level of financial uncertainty faced by households. Over the five years through 2022, the gross national savings rate is estimated to increase by 1.9 percentage points in absolute terms, albeit recovering from a relatively low base and exhibiting a degree a volatility.

As the economy improved in the first year of the period, the savings rate decreased, as households and businesses expanded consumption in response to rising disposable income. However, in 2017, savers saw some improvement to market conditions which resulted in exacerbated growth in the gross national savings rate during the year - it grew by 2.1 percentage points. The Bank of England (BoE) opted to raise the base rate from 0.25% to 0.5% in November 2017 while treasury-backed NS&I (National Savings and Investments) also announced in November 2017 that it was raising interest rates across its variable rate product range, encouraging private savings.

Although small gains in the savings market have continued in 2018, with the BoE raising interest rates further to 0.75% in August 2018, any would-be exponential growth in the gross national savings rate was limited by living cost and consumer price inflation coupled with income stagnation, forcing private households to cut savings or increase borrowing - the gross national savings rate fell by 0.5 percentage points in 2018. In 2019, the gross national savings rate remained relatively flat. Despite relatively high real wage growth and the UK's record low unemployment rate, living costs remain high and prevent any significant growth in savings.

On 11 March 2020, the Bank of England (BoE) announced an emergency cut to the base interest rate, reducing it from 0.75% to 0.25%. In light of immediate disruption to the marketplace caused by an exogenous economic shock borne out from the COVID-19 (coronavirus) pandemic, the BoE took borrowing costs back down to their then-lowest level in history, with the governor of the BoE stating policymakers had witnessed a notable, overnight deterioration in trading conditions, including a marked contraction in spending on non-essential goods; this justified slashing the rate, with expectations, at the time, that coronavirus would at the very least temporarily albeit significantly disrupt supply chains and weaken economic activity. Just over a week later, the BoE moved to cut the rate again on 19 March 2020, this time to a new record low 0.1%. A second emergency cut in quick succession occurred after the UK's financial markets became borderline disorderly, with fears among currency traders, policymakers and so forth mounting with regards to the severity of coronavirus from both a public health and economic impact perspective. A rate of 0.1% was held at such a level for an extended period to help stimulate market activity during a time overshadowed by lockdown restrictions, which prevented "normal" consumer and business behaviours, a time characterised by prevalent uncertainty with regards to job security and near-term economic prospects.

In light of cuts to the official bank rate and the coronavirus outbreak during 2020, the rate of savings fell by 0.9 percentage points, reaching 14.3%. Furthermore, the 80% pay cap on the job retention scheme likely resulted in reduced savings for those affected. However, amid the easing of lockdown restrictions across the UK and the reopening of the domestic and global economy, the rate of savings is estimated to have risen in 2021.

Over the current year, the BoE have announced that GDP growth in the United Kingdom is slowing. The latest rise in gas and energy prices, predominately caused by the conflict in Ukraine, has led to another significant deterioration in the outlook for activity in the United Kingdom. The UK economy is now projected to enter recession from the fourth quarter of 2022. The UK economy is expected to contend with rising inflation, supply chain difficulties, energy price surges and dampened business confidence, exacerbated by Russia's invasion of Ukraine. The United Kingdom's annual inflation reached a four-decade high of 10.1% in July 2022 amid rising food and energy prices, the highest among G7 economies. In response to rising inflation, On 16 December 2021, the BoE's base rate was raised back to its 0.25% level – the first rise in more than three years. The official bank rate was then raised to 0.5%, 0.75%, 1.25% and 1.75% respectively in February 2022, March 2022, June 2022 and August 2022. As pandemic-related restrictions have been lifted and inflation continues to climb, the BoE is more inclined to hike interest rates to prevent the economy from overheating and so as to limit inflationary pressures. Consequently, in 2022, the gross national savings rate is expected to increase by 0.7 percentage points to 15.8%.