Savings amounts increased for a fifth consecutive month in February, sparking hope that the UK’s recession will be short-lived, but Hargreaves Lansdown warned that there is a “dark space to crawl through” before consumers feel more financially secure.
Data from the Bank of England showed UK savers paid a total of £6 billion into banks and building societies in February. This was driven by £3.5 billion paid into interest paying easy access accounts, while fixed accounts rose just £0.1 billion.
The average rate on a fixed account fell 7 basis points to 4.46%, while the average easy access rate rose 4 basis points to 2.11%.
At the same time, mortgage approvals for house purchases rose from 56,100 in January to 60,400 in February, the highest level since September 2022.
Susannah Streeter, head of money and markets at Hargreaves Lansdown, said the snapshot gives “further hope that the pernicious effects of high interest rates” on the economy are beginning to lighten.
Streeter said: “Expectations have shifted higher again that the recession is in the rear-view mirror, given that homebuyers clearly feel more confident, which is likely to play out in spending elsewhere in the economy. The flow of money into instant access deposits continues, indicating less willingness to save for the longer-term and a keenness to have funds on tap to splash the cash.”
However, Streeter said despite this, there remains a “dark space to crawl through” before companies and consumers feel significantly more financially secure.
“Growth is likely to remain highly sluggish in the months to come, with caution set to reign until interest rates start to be cut in the second half of the year,” she added.
Sarah Coles, head of personal finance at Hargreaves Lansdown, echoed the sentiment, noting that those on lower incomes continue to face an uphill struggle.
“The Bank of England figures only give us half the picture. The squeeze is easing for those on average incomes who are enjoying lower energy bills and the easing of inflation. Those on higher incomes aren’t benefitting quite so much from the tax cuts but they always had more wiggle room and the Hargreaves Lansdown Savings & Resilience Barometer shows they’re building up a big cash cushion,” said Coles.
“Unfortunately, at the same time, the squeeze hasn’t eased for those on lower incomes. They’re paying the price of frozen income tax thresholds and they have been running on empty for months. They’ve spent their way through any savings and are running up serious arrears. However, because they were unlikely to be in the market for property in the first place, and may not qualify for credit, the plight of lower earners is hidden in missed bills and the endless struggle to make ends meet rather than on show in this data.”
