Households could be left around £100 per month short of what they need to cover their spending in just two years’ time on average, as costs rise faster than incomes, a report suggests.
The report estimates that, by 2024, average weekly incomes could increase to £680 by 2024 – while average weekly UK household spending may reach £705 as energy prices and other costs push up the prices of goods and services.
This projected gap adds up to a shortfall of around £100 per month.
The report was published by Yorkshire Building Society and conducted in partnership with the Centre for Economics and Business Research (Cebr).
A survey of 4,000 people was carried out alongside economic analysis from Cebr to examine the financial resilience of households.
The “inflation nation” report found that despite incomes remaining slightly higher than expenses in 2021 (at £596 versus £595, respectively), the rising cost of living has already forced nearly four in 10 (39%) people to dip into their savings in the past 12 months.
Nearly a quarter (23%) of these savers said they had dipped into their savings by between £200 and £499, while one in eight (12%) had taken out between £500 and £999.
Nearly a fifth (17%) had withdrawn more than £1,000.
Just over two-fifths (41%) of people surveyed expect their household outgoings to increase by between £101 and £500 each month over the next 12 months, with utilities, food and drink and fuel prices among the top concerns.
Nitesh Patel, strategic economist at Yorkshire Building Society said: “Costs are rising at a considerably higher rate than income, and will soon overtake income altogether. This level of inflation will see savings quickly depleted for those who have them if action is not taken.
“The concern is not only the here and now – but the knock-on effect of depleted savings for the future. Those planning to buy a home, for example, may have to wait considerably longer whilst they build up their savings again.
“Those who are less financially resilient are encouraged to seek help from organisations such as Citizens Advice so that they can navigate the coming months – and potentially years – without getting into debt, or, indeed, getting into further debt.
“Financial institutions, such as our own, have a responsibility to educate people as much as possible about the real impact this crisis can have and offer any guidance we can.”
Yorkshire Building Society has committed more than £1.8 million of investment over 2021/22 to support skills, employment, financial education and wellbeing and it also has initiatives with Age UK and Citizens Advice.
More than two-thirds (67%) of those surveyed are worried about the impact the crisis will have on them and nearly half (46%) said it is already having a negative impact on their mental wellbeing.
Stephen White, interim chief executive of Yorkshire Building Society, said: “Families across the UK are already having to budget carefully in order to make ends meet.
“Some have accrued savings over the course of the pandemic, which can help foot monthly bills. Others simply do not have the financial resilience to withstand rising costs.
“Whatever people’s current financial situation, it is important they take action now in order to limit the damage the cost of living crisis could cause.
“Researching ways to cut costs and make the most of services available is paramount – even for those who may feel relatively resilient.”
The research also found people in Northern Ireland, Wales, Scotland, the West Midlands and parts of northern England were particularly likely to report having no savings at all to fall back on, with the UK-wide average standing at 17%.
Here are the percentages of people with no savings at all, according to the Yorkshire Building Society research:
– Northern Ireland, 30%
– North-East England, 27%
– Wales, 20%
– West Midlands, 20%
– Yorkshire and the Humber, 19%
– North-West England, 18%
– Scotland, 18%
– South-East England, 16%
– East of England, 14%
– London, 14%
– South-West, 14%
– East Midlands, 12%
And here are the percentages of people surveyed with no savings at all in a selection of major UK cities, according to Yorkshire Building Society:
– Belfast, 30%
– Newcastle, 27%
– Cardiff, 24%
– Glasgow, 21%
– Sheffield, 21%
– Birmingham, 19%
– Leeds, 19%
– Manchester, 17%
– Plymouth, 16%
– Southampton, 16%
– Edinburgh, 15%
– Brighton, 14%
– Bristol, 14%
– Liverpool, 14%
– London, 14%
– Nottingham, 13%
– Norwich, 12%