Britons are building up rainy-day savings and cutting pension contributions as they brace for a new inflation shock from the Iran war.
Research found that nearly a quarter of adults were putting money into savings in anticipation of higher bills later this year, while 14 per cent were worried they would not be able to meet rising household costs without borrowing.
The findings suggest that households are preparing for another financial squeeze even before the full effect of the war in the Gulf reaches domestic energy bills.
The conflict has forced the effective closure of the Strait of Hormuz, the route for a large share of global oil and gas shipments, pushing up wholesale energy prices and threatening a renewed bout of inflation in Britain. The IMF has warned that Britain is set to suffer the sharpest growth downgrade in the G7 and among the highest inflation rates as a result of the shock.
A rise in precautionary saving risks further weakening an already fragile economic recovery, presenting a fresh challenge to the government’s growth objectives. Economists warn that when households divert income into savings rather than consumption, it acts as a drag on demand, limiting business revenues, investment and hiring.
This dynamic is particularly acute in Britain, where growth has been heavily reliant on consumer spending in recent years. The latest official figures underline how little momentum the economy has, with UK GDP expected to grow by 0.8 per cent over the past year.
The findings came from MoneySuperMarket’s quarterly Household Money Index, which surveys more than 8,000 Britons on their income and spending every three months. It found that the average person had £802.33 left each month after essential bills and everyday costs, up by £86.41 since three months earlier. Average take-home pay rose by £108.91 a month over the period, outpacing a £22.50 rise in bills and outgoings.
However, the improvement in disposable income may prove short-lived. Almost half of Britons, 46 per cent, expect household costs to rise again this year. The index found that private pension contributions fell by 7 per cent, from £55.10 to £51.20 a month, suggesting some households were improving their short-term cash position by reducing long-term savings.
Lis Barton, chief customer officer of MONY Group, MoneySuperMarket’s parent company, said: “The index shows that, while on average UK households have seen a modest rise in disposable income, people are still spending almost two thirds of what they earn on everyday bills and essentials.”
The average person spent £49.25 a day on outgoings between February and April, equivalent to £1,477.50 a month. Bills and everyday spending now absorb 65 per cent of income.
There were sharp increases in some regular costs. Spending on life insurance rose by 14 per cent, while health insurance, pet insurance and car leasing each rose by 13 per cent. Water bills rose by 12 per cent. Spending also increased on gym memberships, home maintenance, repairs and streaming subscriptions.
Spending fell in other categories. School and childcare costs were down by 8 per cent, credit card repayments by 7 per cent, car insurance by 5 per cent and groceries by 3 per cent.
The regional divide remains stark. Londoners reported the highest monthly bills and outgoings, at £1,669.86, compared with £1,273.85 in Sheffield. Households in Brighton spent the highest share of income on bills, at 75 per cent, leaving an average disposable income of £516.57. Households in Belfast had the most left over each month, at £954.66.
The figures underline the political risk facing Rachel Reeves, the chancellor, as the government tries to contain the domestic fallout from the Gulf crisis. The World Bank has forecast a 24 per cent surge in energy prices this year because of the Middle East war, with further risks to food prices through higher fertiliser costs.
The chancellor is already reported to be considering emergency measures, including a one-year rent freeze, to shield households from the cost of the Iran war. Ministers fear higher fuel, food, mortgage and travel costs will eat quickly into household budgets.