In April, Cebr forecast that in Q2, households would accumulate £23 billion more in savings than in a normal year. This note updates our projections, to calculate the total savings amassed by UK households in 2020 as a whole.
We find that households will save 19% of their disposable incomes in 2020. This is more than double the savings ratio of 7% in 2019 and equates to £7,100 per household, or £197 billion across all households.
Average incomes have fallen this year. The pandemic has pushed up unemployment, companies have made wage cuts, and furloughed employees have received only a percentage of their usual income. Yet, despite this fall, households have been able to save far more than in a usual year. This is due to a dramatic decline in expenditure that has come about as a result of restrictions on economic activity as well as a lack of consumer confidence. Overall, Cebr estimates that average household expenditure will be 14% lower in 2020 than it was in 2019. Combining this with an estimate of disposable income for the year provides us with a savings ratio of 19%.
Looking at the different quarters of the year, households already started to save more than usual in Q1, despite only the end of the quarter being affected by lockdown, as the savings ratio rose by two percentage points compared to the previous quarter, to 10%. In Q2, households saved a massive 29% of their disposable incomes, as these months faced the toughest restrictions on economic activity. Over the second half of the year, Cebr estimates that the savings ratio will have been 16% in Q3 and 22% in Q4.
These numbers mean that the average household will save £7,100 in 2020 (including investments and pensions). Multiplying by the total number of households in the UK gives total savings of £197 billion over the whole year.
The £197 billion question, therefore, is what will households do with this money that they have accumulated in 2020 when restrictions ease? Of course, a large chunk of these savings will have gone into pensions, which will not be available for spending for some time.
A recent poll by YouGov looked at holiday intentions. As the reduction in holiday spending made up a significant proportion of savings this year, it can give us clues as to how much consumers will spend next year. 29% of British people said that they are not planning on travelling at all in the next year. However, 30% are planning an international holiday in the next 12 months, suggesting spending in this category will edge up, but not quite to the level it was at in 2019.
As for sectors such as arts, entertainment and live sports there could be considerable pent-up demand that will drive up spending once activity is allowed to resume, as many of the businesses within this sector have not been able to open for the majority of 2020.
However, spending behaviours will depend on how confident consumers feel about the economy next year. A combination of Brexit and the end of the furlough scheme in March could damage economic output and the labour market early next year, meaning consumers would rather hold on to much of the extra cash they have accumulated in 2020, rather than spend it.
Josie Dent, Managing Economist
 Savings includes investments and pensions
 Source: Office for National Statistics