Coronavirus adds to UK’s ‘chronic savings deficit’

AJ Bell has suggested the financial concern of savers around the UK caused by coronavirus has added to the “chronic savings deficit” that the country entered the Covid-19 crisis with.

The investment platform was responding to new data published by the Office for National Statistics (ONS), which revealed that almost one in four adults (22.9%) have suggested coronavirus is affecting their household finances.

The latest data released by the ONS, based on a responding sample of 1,581 individuals and weighted to make estimates representative of the population, showed the main concern amongst the people whose household finances had been affected was a reduced income, with 72.9% suggesting this as a cause for concern.

This was followed by 31.9% having needed to use savings to cover living costs, and 22.1% saying they were struggling to pay bills.

When considering their future, the ONS data also showed that nearly half of all adults (44.3%) expected their financial position to get “a little or a lot worse” over the next 12 months, while a lower proportion (41.0%) expected to be able to save over the same period.

Furthermore, the data indicated 35.0% thought it would be between four and six months before their life would return to normal, while another 32.9% of respondents thought it would be longer than six months.

“Already, almost a third of those who’ve seen their income affected have had to dip into their savings in order to cover their basic living costs, such as food, bills and housing costs, while more than one in five people say they are struggling to pay their bills,” AJ Bell personal finance analyst, Laura Suter, commented.

“What we’re seeing is just the start of the impact on people though, with almost half of adults saying they expect their finances to get worse over the next year. It appears they’re in it for the long-run, with two-thirds of the population thinking it will take four months or more for things to get back to normal – including a third of the population who think it will be longer than six months before normality returns.

“The UK went into this crisis with a chronic savings deficit, with many households having little to no savings to fall back on if they saw their income hit. It means that any drop in income will have an immediate effect on lots of households, particularly if there are no big cutbacks they can make, and we’re already seeing the impact of this.

“But it’s not just the working age population being hit, one in five of those who’ve seen their finances affected say it’s because their pension value has fallen due to the drop in stock markets. If you’re already in retirement and reliant on this pot you’re going to face a real cut to income too, or risk exhausting your pension pot sooner.”

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