Record amount withdrawn from savings as cost of living crisis bites households
UK households withdrew a record amount from their savings last month and were more cautious with credit card spending, according to Bank of England data highlighting the extent of the squeeze on consumers.
The smallest net increase in monthly unsecured lending this year, at £1.1bn, was recorded by the bank in May.
A figure closer to £1.5bn had been expected.
Rising borrowing costs to tackle the country’s inflation problem likely drove people to raid savings instead.
The data showed that households withdrew a net £3.8bn from their accounts – a figure that would have been higher but for inflows into National Savings & Investments accounts.
The bank said it was the largest net monthly outflow on record.
Worryingly, the funds exodus took place before the cost of living crisis took a new twist this month.
That was down to rising market interest rate expectations when official data showed higher than expected wage settlements and a spurt in so-called core inflation.
It prompted a jump in lenders’ funding costs, prompting many to withdraw and reprice their fixed rate deals.
The correction saw average two-year fixed rate deals pass the 6% mark.
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What’s going on with mortgages?
The latest data from Moneyfacts showed that rate at 6.37% on Thursday and the five-year rate averaging almost 6%.
The Bank of England data showed that 50,524 mortgages were approved in May – up from 49,020 in April.
Those figures are likely to go into decline when June’s data becomes available – also reflecting the Bank of England’s policy action of a 0.5 percentage point interest rate hike to 5%.
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Scale of rate hike is shock therapy for UK’s inflation problem
While financial markets believe bank rate could rise as high as 6.25%, governor Andrew Bailey used remarks at a forum for central banks on Wednesday to suggest that current market expectations may be stretching it.
The bank is trying to quell demand in the economy to bring down inflation, which remained at 8.7% in May.
It hopes that by stifling consumer spending and demand for credit, the pace of wage and price growth will slow and prevent inflation becoming engrained.
It has called on employers to refrain from high wage increases that look to offset damage from inflation and avoid profiteering to help it get bank rate back to its 2% target in the medium term.
Commenting on the bank’s latest data, interactive investor’s senior personal finance expert Myron Jobson said: “As household budgets buckle under the weight of stubborn inflation, the once untouched savings accounts are now facing a storm.
“In the face of rising prices across the breadth of household expenditure, from groceries through to mortgage or rent payments, many may find themselves reluctantly tapping into their rainy-day funds, making it hard to weather the financial tempest.
“In the face of a cost of living crisis, individuals find themselves at a crossroads, forced to make challenging decisions about their hard-earned savings.
“The path of withdrawal, though unavoidable for many, is riddled with risks and long-term consequences. With savings acting as the last line of defence, withdrawals leave savers with less shielding to weather the full brunt of unforeseen costs.”
The chairman of the UK’s biggest water company has apologised to customers but defended staff bonus payments.
Sir Adrian Montague, of Thames Water, told MPs on the Environment, Food and Rural Affairs select committee that the utility firm, which supplies 16 million customers in London and parts of south England, was sorry.
He said: “We know the supply interruptions cause inconvenience and sometimes real hardship, and so I think the right thing to do is to start the discussion of the [company’s] turnaround plan by acknowledging we haven’t always served our customers as well as we should, and through the committee, apologising to them.”
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Thames Water’s chairman Sir Adrian Montague appears before the Environment, Food and Rural Affairs select committee. Pic: PA/House of Commons/UK Parliament
Customers faced significant service disruption in recent years, including a boil water notice in Bramley, near Guildford, last summer and a 40% rise in sewage spills in 2024.
It’s also struggled to raise investment, repay its debt pile, which now stands at £19bn after an emergency loan prevented it from running out of money and entering state control.
Despite the massive debt pile, Sir Adrian defended paying bonuses, saying the company was in “a competitive marketplace” and “we have to keep staff”.
“It’s true that this business, like many businesses, needs to reward its staff effectively”, he told committee members. “We do need to reward [staff] competitively.”
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Thames Water boss can ‘save’ company
If bonuses were not paid, “people will come knocking, they’ll try to pick out of us the best staff we’ve got”, Sir Adrian added.
“But the amounts of bonuses paid to staff is very small compared with the capital cost of the works that we were considering,” he said.
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Thames Water’s chief executive Chris Weston appears before the select committee. Pic: PA/House of Commons/UK Parliament
In the first three months of his tenure, which began in January 2024, Thames Water’s chief executive Chris Weston accepted a bonus of £195,000 as part of his £2.3m pay package.
His bonus can be up to 156% of his salary as a bonus, while frontline workers can only earn between 3% and 6%, he said.
When approached by Sky News on Tuesday, Mr Weston said he was sorry for the service that the customers received and “it’s not where we would like it to be, everyone is very committed in terms of trying and sorting it out”.
Customer bills are to rise 35% to about £588 annually per household by 2030, a figure which Thames Water is seeking to increase.
Nissan is set to announce a leap in its cost-cutting plans that will see 20,000 jobs go globally, according to reports in Japan.
The carmaker, which employs around 6,000 workers at its sprawling manufacturing operations in Sunderland, had already let it be known last November that 9,000 roles would be going amid weak sales and rising costs.
But Japanese broadcaster NHK said on Monday it expected that total to more than double.
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Nissan, which was yet to comment on the claim, is due to reveal full year results covering the 12 months to March on Tuesday morning.
They are expected to show a net loss of up to £3.8bn due to a series of writedowns on the value of its operations.
They will be the first results Nissan has declared since the appointment of a new chief executive last month.
Ivan Espinosa issued a “significant” downgrade to Nissan’s outlook just three weeks ago.
If the job cuts report is true, it would amount to a 15% reduction in the company’s worldwide workforce.
New models of the Nissan Juke being assembled at the Sunderland plant. Pic:PA
It is not known if the Sunderland production facilities form part of any planned job cuts or production reductions, of up to 20%, that were reported.
Nissan has, on several occasions since Brexit, called the plant’s future into question before proceeding with investment plans.
It has invested £2bn in Sunderland since 2023 alone.
The company secured UK government money this year for a new electric powertrain manufacturing facility in Sunderland.
But a senior Nissan executive, Alan Johnson, warned more aid was needed just last month, arguing that the UK was “not a competitive place” to build cars.
Nissan, like rivals, is facing challenges on many fronts.
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US trade tariffs of 25% on all car imports has exacerbated pressure on its supply chain and sales.
The latter has been struggling due to weaker-than-anticipated electric car uptake.
But the vast majority of its cars made in the UK will be subject to a tariff of just 10% after the UK-US trade deal agreed last week.
It does not currently send Sunderland-made cars to the United States. Most are for export to Europe and the domestic UK market.
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