UK Households Increase Savings Dampening Hopes for Economic Growth

UK households have stepped up their savings in the second quarter of 2025, a trend that has raised concerns among economists and policymakers regarding the outlook for economic growth. According to the Office for National Statistics, the household savings rate climbed from 10.5 per cent to 10.7 per cent between April and June, reversing the earlier fall recorded at the start of the year. This figure, which measures the percentage of disposable income households save rather than spend, is now well above the pre pandemic historical average of 5 to 6 per cent.

The UK economy is driven primarily by consumer spending, accounting for close to two thirds of GDP. Rising levels of saving suggest that consumers are becoming more cautious, a sentiment often linked to uncertainty about personal finances and the broader economic environment. Analysts point to speculation about potential tax hikes in the upcoming budget as one factor dampening consumer confidence, which in turn has reduced spending in favour of increased saving.

British households have consistently put away more of their earnings than their American and European counterparts in recent years. While the eurozone’s average savings rate stands at 15 per cent and the US at 5 per cent, UK households continue to exceed their own norms. Notably, the proportion of household debt to income has fallen to 117 per cent, the lowest in more than two decades, strengthening balance sheets across the country.

Hopes that falling interest rates would encourage consumers to draw on their savings and boost spending have not materialised. Despite the Bank of England making five reductions to the base interest rate in the past year—now down to 4 per cent—households seem determined to maintain higher cash reserves. Economists predict only one more cut in 2025, maintaining an environment where saving remains attractive relative to spending or borrowing.

Some experts, including those at Pantheon Macroeconomics and WPI Strategy, suggest that if consumer confidence improves, households could begin saving less and spending more, supporting future growth. On the other hand, robust levels of saving could eventually benefit the economy through increased investment as bank and household balance sheets strengthen. For the moment, however, the tilt towards saving over spending is proving a drag on sectors reliant on consumer demand.

The coming months will be crucial in determining whether rate cuts and fading economic shocks can revive consumer sentiment and nudge the UK back toward a more typical pattern of consumption driven growth. For now, the British preference for saving persists, presenting both challenges and long term opportunities for the economy.