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1.2.2 The UK’s savings ratio

When looking at savings behaviour a key measure is the household saving ratio. This measures the percentage of household disposable income that is available to be saved – i.e. gross income after tax and other deductions and less household spending.

A line graph showing the UK household saving ratio between 1963 and 2020.
Figure 6 The UK household saving ratio 1963–2023 (source: ONS, 2023).

Figure 6 above shows the household saving ratio for the UK since 1963. It shows how the ratio has varied over this time. In 2020 the ratio was dramatically affected by the impact on the economy of the COVID-19 pandemic which reduced household spending and so increased the capacity of households to save money. The measure for 2020 also vividly demonstrates a key driver of the ratio – it tends to rise during periods of economic uncertainty or weakness. The increases in the ratio in the early 1980s and 1990s - and again after the financial crisis of 2008/9 - coincided with economic recessions in the UK. The evidence suggests that in such times households look to build up ‘precautionary’ balances of savings in case they are directly affected by these economic downturns.

By contrast when the UK economy was growing quickly (with household incomes rising), the household saving ratio was lower. This can be explained by the fact that when things are going well, confidence is high, and people tend to spend more. The diminished risk of unemployment when the economy is performing strongly reduces the perceived need for precautionary savings balances. This was the picture in the late 1980s and in the early 2000s.