Household savings set to decline post-COVID

In fact, the report predicts that the UK household savings rate is set to dramatically fall by 70 per cent (or £4,000 less) on average compared to the highest levels during the pandemic, and will fall to an average rate of around 6 per cent of household income, or even further if downward pressures continue.

Hoa Duong, economist at PwC UK said a fall in household savings rate from the record levels seen during the pandemic is a good sign of economic recovery, as consumers spend again on social activities and other luxury goods.

“Yet it is concerning that the savings rate this year will fall to the pre-pandemic levels of around 6 per cent,” he said.

“This fall highlights the impact of the growing cost of living, especially with significant increases to energy bills and recent interest rates rises. While the savings rate has started to stabilise, there remains potential for further volatility as these pressures continue.

“As the UK economy continues to re-open and recover in 2022, we are starting to see some of the impacts of economic and social uncertainty play out in a variety of ways.

“A combination of post-lockdown spending and the rising cost of living will eat into household savings rate, which will decline back to pre-pandemic levels. While this stabilisation is to be expected, there could be a risk the rate will decline further in 2023 if inflation continues, and real wage growth tails off.”

While there are significant macro-economic uncertainties for the UK economy in 2022, PwC does expect growing consumer and investor expectations around ESG goals to continue to drive real change for UK business.

For instance, PwC forecasts there could be a record number of heat pumps sold across the UK in 2022, potentially triple the number sold in 2020. Early estimated sales for 2021 based on manufacturing orders of heat pumps are already twice the 2020 sales (67,000 and 32,000, respectively). The UK government is currently aiming for 600,000 pumps to be installed by 2028. 

“The high cost of installation has proven to be a significant disincentive for many when it comes to heat pumps,” Ms Duong said.

“Yet a combination of government grants, the possibility of a ban on new gas boilers and growing energy costs are starting to change that calculation for many. Importantly, there are also signs that consumer attitudes towards more environmentally friendly lifestyles are growing, despite economic uncertainty, and this remains a source of optimism for achieving Net Zero goals.”

At the same time as consumer expectations are changing, there are signs of improving gender balance at board level for UK businesses. By the end of 2022 four in every 10 directorships in the FTSE 100 will be held by women. 

“There are reasons to be concerned that the pandemic has had a disproportionately negative impact on women in the workforce,” Ms Duong said.

“Yet the improving representation of women at the highest levels of business is a cause for optimism, and a demonstration that growing pressure from government and investors can drive real change.”