After years of failed New Year’s resolutions, the global pandemic appears to have helped Britons collectively pay down personal debts such as credit cards and loans.
Between March and October, the latest figures available from the Bank of England, Britons paid out £15.6 billion of their plastic and other loans.
When the pandemic swept the country in March, more money was being borrowed than repaid.
All of this means that by October, Britain’s personal debt build-up had shrunk to £205.5 billion, down from £225 billion in the same month in 2019.
The 5.6 per cent year-on-year decline in the amount we all owe is the biggest drop since the Bank of England began tracking numbers in 1994.
If you want a further indication of how unprecedented all this is, consider that last November Britain paid back more than it borrowed on credit cards for the first time since July 2013.
This year, we’ve done that on every month since March except for two summer occasions, and the amount we all owe has fallen 13 per cent year-on-year to £60.7bn. There was already a plastic purge.
It’s not hard to see why this happens.
The country has been under coronavirus-related restrictions since mid-March and between March and June, and again from November, has been on lockdown as cinemas, non-essential shops, bars, restaurants and theaters have been forced to close.
|Month||The amount owed on credit cards and other loans||Change from year to year|
|February 2020 (last month of lockdown before coronavirus)||225.1 billion pounds sterling||+5.7%|
|October 2020 (latest figures available)||£205.5bn||-5.6%|
|Source: Bank of England (seasonally adjusted data)|
Indeed, the Office for National Statistics estimated in June that more than a fifth of household spending last year, £182 per week on average, went to things that were prevented by the pandemic.
And despite the easing of travel restrictions over the summer, holiday spending this year will almost certainly not come close to the roughly £62.3 billion we spent on 93.1 million overseas trips in 2019.
As a result, the amount of disposable income we saved rose to an all-time high of 29.1 percent between April and June, more than double the previous record of 14.4 percent set 27 years ago, while the Center for Economics and Business Research estimates that The UK savings rate could reach 19 per cent in 2020, again a record.
|Month||The amount owed on credit cards||monthly change||Monthly percentage change||Annual percentage change|
|January||72.1 billion pounds sterling||£0.2bn||0.2%||4.3%|
|Walk||£69.3bn||-2.4 billion pounds sterling||-3.3%||-0.3%|
|April||64.1 billion pounds sterling||-5.0 billion pounds sterling||-7.2%||-7.8%|
|July||62.1 billion pounds sterling||£0.5bn||0.8%||-10.7%|
|September||£61.3bn||-0.6 billion pounds sterling||-1.0%||-11.7%|
|October||£60.7bn||-0.4 billion pounds sterling||-0.7%||-13.0%|
|Source: Bank of England (seasonally adjusted data)|
The British National Statistician said the increase in saving was largely driven by declines in spending on restaurants, hotels, transport, entertainment and culture as households were unable to spend on these types of social consumption.
“People who were lucky enough to keep their jobs saved money during the lockdown, and many of them had the foresight and common sense to lower their borrowing levels,” said Andrew Hager, personal finance expert and founder of Moneycomms.
“With savings rates at woefully low levels, you can see why so many have adopted this strategy rather than increasing savings balances.”
The Office for National Statistics found in June that around £182 a week had been cut off from household spending due to the first coronavirus lockdown.
But the overall numbers don’t tell the whole story. While millions have benefited from working from home and being able to cut back on the cost of eating out or socializing and building up savings, millions more are struggling to make ends meet, have lost their jobs or seen their incomes decline.
And even those who are able to save during the lockdown may have set aside more because they worried about losing their jobs.
The gap was highlighted in an analysis from the Institute for Fiscal Studies which found that the richest fifth of households swelled their bank balances by nearly £400 a month between March and September.
However, the poorest fifth were about £170 worse off, as they were less able to cut spending over the same period.
The percentage of disposable income saved by households rose to an all-time high of 29.1% between April and June during the coronavirus lockdown.
Meanwhile, debt charity StepChange estimated that 2.5m people had accumulated nearly £10bn in arrears and debt due to coronavirus, with 29 per cent of those who sought help from the charity in October being behind on their council tax bills and a fifth on their rent. .
Instead of paying off their debts and avoiding their credit cards, two-thirds of those surveyed had taken a loan from the charity to make ends meet.
But for those who have managed to break Britain’s over-borrowing over the past decade, the question is whether old habits will die hard or whether the country will truly become a nation of savers.
Research by Santander found that two in five said they were paying more attention to their personal finances than they were before the March lockdown, but that doesn’t necessarily mean they’ll continue to save if and when life returns to normal.
Indeed, the Chancellor and economic policymakers no doubt hope they will not, and will instead use the savings they have accumulated to help kick-start the recovery of an economy that relies heavily on consumer spending.
But in the short term, there is a chance that newfound savings will run into the millions, not least because of continued coronavirus restrictions that are making it more difficult to spend.
“I think it will be early summer before we see any signs of things returning to something more normal, mainly depending on the coronavirus vaccine being rolled out,” said Andrew Hager.
Once people regain their freedom and have the confidence to go and spend, I expect to see consumer debt levels start to rise again, however some people have adopted a more frugal lifestyle over the past 10 months and this may affect the way they manage their finances in the future.
It’s been an unprecedented year for consumer finance, and I expect the first quarter of 2021 to be about the same.
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