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According to the financial institution, savings levels in the UK dropped in July, from £9.8million in June, to £7.1billion in June. At the same time, deposit interest rates continued to fall dramatically to new historically low levels. The effective interest rate paid on individuals’ new time deposits with banks decreased by two whole basis points to 0.29 percent.
On top of this, the effective rates on the outstanding stock of time deposit dropped to 0.38 percent, whilst sight deposit rates remained at 0.10 percent.
Laura Suter, Head of Personal Finance at financial firm AJ Bell, blames the summer holiday season for encouraging Britons to cut their healthy spending habits, which many picked up during the pandemic and lockdown.
She said: “As the kids broke up from school and summer holidays began we all started spending more and saving less.
“People saved less in July than in June, with £7.1billion of money put away in the month, a nearly £3billion drop on the previous month.
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“But it’s clear to see why people might decide to get out and spend their money instead of saving it, as interest rates on deposits fell yet again to another historic low.”
Despite this change to frivolous spending, many people in the UK did not borrow additional consumer credit in July, on net.
For the period, the effective rate on new personal loans remained low at 5.85 percent, but this is the highest since March 2020.
However, despite this rise in spending Ms Suter is cautioning the public that the economy has not returned to its pre-Covid status quo.
“Despite this rise in spending, people weren’t putting more money on their credit cards and many continued to pay down this debt,” she explained.
“Since the start of the pandemic last year households have paid off large sums of their credit card debt but this started to turn around earlier this year as lockdown eased and everyone got out and spent more.
“In July net borrowing was zero, compared to an average borrowing figure of £1.2billion a month in pre-pandemic times, showing we’ve not entirely returned to our old spending ways.”
As well as publishing the country’s saving figures, the Bank of England also updated Britons on the state of mortgage payments in the UK for the month of July.
Over the period, individuals repaid £1.4billion of mortgage debt on net after a record net borrowing in June of £17.7billion.
Mortgage approvals for house purchase were 75,200 in July, which is slightly down from 80,300 approvals the month before.
According to AJ Bell’s savings and mortgage expert, record low interest rates are likely to “keep the market afloat” despite concerns of its volatility.
Ms Suter added: “The nation is waiting to see if the housing market falls off a cliff after the end of the stamp duty holiday.
“July’s data suggests the market may be slowing, with £1.4billion of net repayments of mortgage debt in the month.
“This is something that has happened only one other time in the past decade: in April last year during the thick of the pandemic when the housing market was effectively closed.
“The amount we were all repaying on our mortgages stayed roughly the same as the past year, but the amount we borrowed dropped to £16.5billion – the lowest since June last year.
“However, while mortgage approvals for future purchases fell a bit in July, they are still above pre-pandemic averages – showing signs that the market may remain fairly buoyant.
“And with the interest rates on mortgage borrowing dropping again, it’s likely that record low rates could keep the market afloat yet.”
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