UK households continued to amass savings and pay down debt in May as stores remained closed for a second month in an effort to the stop the spread of coronavirus.
The build-up of money in bank accounts reflects both the reduced opportunities to spend and the fact that the wages of millions of furloughed workers are being paid by the government.
The question is whether Britons go on a spending spree as the lockdown eases and businesses reopen, or hoard their cash for fear of losing their job amid what’s expected to be the deepest recession for at least a century. Their response will determine how quickly the economy bounces back, and may influence the level of support the government and the Bank of England continue to provide.
Chancellor Rishi Sunak, who is preparing to announce measures to kickstart the economy, acknowledged in an interview last week that restoring consumer confidence is crucial to the outlook, despite household balance sheets being in “reasonably robust shape.”
Households added a record 25.6 billion pounds ($32 billion) to their accounts, taking the total over the past three months to 56.6 billion pounds, the Bank of England said. Meanwhile, consumers reduced credit card and other unsecured loans for a third month, repaying 4.6 billion pounds in total.
Separate figures showed the mortgage demand weaked further despite the housing market reopening for on-site viewings in the middle of the month. Approvals slumped to just 9,300, a third of their trough during the financial crisis in 2008.
Rising unemployment and the increasing unwillingness of lenders to take on risk mean that the housing market is unlikely to improve dramatically. Nationwide Building Society this month increased the minimum deposit that first-time buyers must put down to 15% from 5% to guard against the possibility of falling prices, adding tens of thousands to the up-front costs of buying a home in the priciest areas.