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Squeezed households raid savings as withdrawals reach record amounts

Households withdrew record amounts of their savings last month, according to figures from the Bank of England.

People withdrew a net £4.6bn from banks and building societies – the highest level of withdrawals since the Bank began collecting the data in 1997.

When deposits into National Savings and Investment accounts are taken into account, there was a net withdrawal of £3.8bn as people dug into their savings to meet their living costs and reduce mortgages, according to the Bank’s Money and Credit report.

The Bank said there was a spike in withdrawals from easy access accounts paying interest, to £11.4bn from £5.4bn; £3.3bn was withdrawn from such accounts paying zero interest.

Unsecured lending to consumers rose by £1.14bn last month after a £1.51bn increase in April.

Financial analysts said the record withdrawals signalled people facing squeezed incomes in the cost of living crisis rather than confidence in the economy to go out and spend.

Sarah Coles, Hargreaves Lansdown’s personal finance head, said the savings raid could be partly due to consumers “juggling” funds from low-interest-rate saving accounts to better fixed-rate deals, competitive NS&I accounts and Isas.

“However, there’s a real risk that millions of people are being forced to erode their savings to make ends meet,” she said.

‌“This was always a risk at this stage in the cost of living crisis, now that so many people have cut every cost they possibly can and are being forced to raid their emergency savings.

“We know that those on above average incomes still have lockdown savings to call on, but if the spending squeeze goes on for much longer, these will be worn away entirely.”

Thomas Pugh, an economist at the consulting firm RSM UK, said the withdrawals could also suggest households “are finally confident enough to start spending some of the savings built up during the pandemic”.

“But it seems more likely that households are using savings to pay down debt, which has become much more expensive recently”.

“We suspect [consumer lending] will decline further in the coming months as the growing drag from higher interest rates may mean households cut back,” said Ashley Webb, an economist from consultancy Capital Economics.

Sarah Coles says emergency savings are drying up in the spending squeeze (Photo: Supplied)

Individuals repaid £100m of mortgage debt in May. The repayments followed the record £1.5bn net repayments in April.

Bank figures showed that mortgage approvals rose in May. Lenders approved 50,524 mortgages last month, up from 49,020 in April.

Mr Pugh said this will probably have reversed in June as the recent surge in mortgage interest rates “depresses demand” but higher interest rates and falling real incomes will “limit buyers’ ability to meet high prices”, he said.

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