UK – 5th lowest level of saving in Europe

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According to the World Bank the UK has the fifth lowest level of gross savings as a percentage of Gross Domestic Product (GDP) in Europe.

With gross savings at 12% of GDP the UK is only ahead of Iceland at 11%, Portugal at 10%, Ireland at 9% and Greece at 3%. Even Spain at 20% and Italy at 16% are ahead of us. The list is topped by Norway and Switzerland which both have 32%.

How much are we saving?

The household savings ratio – which is basically the percentage of disposable income that people save or use to repay loans – for Q4 2010 has come in at 5.4%. To put this into perspective the average savings ratio for the last decade is 4.3%. But compare this to the 90’s, which averaged 9.2%, and the 80’s which averaged 8.7% and it is easy to understand how the UK has come to have one of the lowest levels of saving in Europe.

On the face of it we are starting to save more. The Bank of England’s Housing Equity Withdrawal report for the same period reported that £7 billion of mortgage debt had been repaid in the same period. Also there was an increase of £11 billion in household cash deposits for the quarter, which grew to a total of £1.096 trillion at the end of December 2010.

But the Q4 2010 savings ratio represents an increase in gross household savings of £13.8 billion over the last three months of 2010. Which indicates that taking into account the £18 billion of cash saving and mortgage repayments, that there was a £4.2 billion net reduction in other forms of saving.

How much are we borrowing?

Personal debt for the same quarter reduced by £3 billion; from £1,455 billion at the end of September 2010 to £1,452 billion at the end of December. So overall we are saving more and borrowing is remaining fairly constant. That has to be good news, but these are still extremely high levels and when the countries massive deficit is taken into account the UK’s debts still far outweigh our savings.

How much should we be saving?

On a personal level it is probably fairly easy to calculate how much you need to save, even if it’s not that easy to achieve it.

But on a national level, we don’t know. Despite the importance of savings in providing the money needed to fund business investment, and to support people in their old age the Government does not publish targets for saving.

The proper balance of savings, investment, spending and debt in this country has been grossly mishandled by policy makers. To get us out of this situation the Government must not just grow the economy but return it to balance.

The level and distribution of savings across the economy are important economic and social indicators. We need to understand what the optimum levels for these are and have clear policies on how to achieve them.

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