UK households become net borrowers for the first time in 30 years while discretionary spending jumps in Q2 as savings fall

The ONS has reported that outgoings surpassed income by £900 in 2017, amounting to almost £25 billion.

The findings show how while in the early 1990s the average household had around £120 left over to save from every £1,000 of income (after taking out their spending and taxes), last year this had fallen to just £41, which is the lowest ever.

Rising prices and modest growth in disposable income have led to the development, the ONS said, forcing consumers to take out loans and raid savings to make ends meet.

A further evidence of this, the ONS said, was the amount of money owed in short-term loans has surpassed its pre-crisis level.

The news will be worrying for the Bank of England, which has raised concerns about levels of personal debt and follows news earlier this week from the Resolution Foundation which showed millions of “just about managing” families are no better off today than those in 2003.

The organisation said the remarkable income stagnation for so many reveals that the economy has been failing to generate income for people over many years despite record levels of people in work.

In 2003, households on the lower half of incomes typically earnt £14,900.

In 2016/17 that figure had fallen to £14,800, the research shows.

Both figures are adjusted for inflation and housing costs.

This, however, has not stopped year-on-year UK consumer spending increasing during the second quarter of 2018 while savings dipped, according to a new quarterly analysis of Britain’s personal finance behaviour.

The findings of personal finance app Money Dashboard showed the increase in YoY spending is underpinned by a jump in discretionary spend (+5.7 per cent) during Q2 with consumers splashing out on both themselves and their families.

The results are revealed in a new quarterly report – the Money Dashboard Spend and Save Tracker - analysing around 3.1 million debit and credit transactions per quarter.

Following a slow start to the year for consumer spending, YoY spending was back on the rise in Q2 with an increase of +1.4 per cent.

The uptick in YoY spending is primarily due to an increase in discretionary spending, driven by consumers spending more on enjoyment (+7.3 per cent) and on their families (+12.1 per cent).

While discretionary spending has increased, spending on bills and insurance is lower than the same period last year. The greatest reduction in expenditure is for bills – including gas, electricity, council tax, TV licence, internet and phone bills – which has seen a quarterly year on year dip of -6.7 per cent, following a -3.7 per cent reduction in Q1, suggesting consumers are becoming increasingly savvy about switching providers and shopping around for the best deals.

Average consumer spending for Q2 was £1,511, up on Q1 spending of £1,467, and up year-on-year against average consumer spending in Q2 2017 (£1,491).

Following a prolonged period of low interest rates, year-on-year consumer savings are finally in decline, by -0.1 per cent. Based on previous trends, it is expected that savings will continue to dip during the summer as UK households splash out on their holidays.

Average savings for Q2 were £135.10, marginally down on Q1 savings of £145.

Maria Anaplioti, insights analyst at Money Dashboard, said: “Consumers have been increasing their discretionary spend consistently over the last year. Whilst saving money on their bills and insurance costs, consumers appear to be ploughing that money back into the economy by having fun. At the same, the lack of incentive to save through consistently low interest rates seems to have further boosted their spending coffers.

“The patterns displayed across both spending and saving would seem to suggest that consumers are becoming more money-wise. It remains to be seen whether this is the beginning of a longer term trend or a mere blip.

“Focusing on discretionary spend alone, we would expect a combination of England’s fortunes in the World Cup and the prolonged warm weather to contribute to an increase in consumer spending during July.”