British Bears

Generali

First a quick lesson in statistical reporting and economic theory.

Generally when economists talk about saving they talk about it in net terms: if I borrow £50 on my credit card and put £75 into my savings account then I have saved a net £25.

Most countries report savings in the same net terms so when you hear that Chinese people save a third of their income or whatever utterly unbelievable claim is being made this week, that's net of individual borrowing (corporate borrowing doesn't count on the minus side nor does taking out a mortgage as they both count as investment).

Moving closer to (your) home, the UK takes a different approach. Savings are reported in gross terms. That means that in the example above, I have saved £75 not £25. The borrowing is considered separately. When we look at things in this way, it becomes clear why the 2000s economic boom was unsustainable in the private sector as well as the public one. It also suggests you may be back on an unsustainable trend:



However, there is a caveat as the Government is looking at increasing the minimum wage by 11%. The recession is over and things are getting better so companies can afford it or so the argument goes. That could increase the savings rate dramatically, if only by reducing borrowing.

Loughton_Monkey

Any links? Would like to see any comment or analysis with this.

Superficially looks rather dire!

I wonder if it includes pension 'savings' - or house equity. I assume not.

Personally, I distinguish between secured debt (basically mortgages and HP) and unsecured debt (credit cards and loans/overdrafts).

One would have thought that the recent recession would have represented a very loud 'knock on the door' to people to put something away for the next rainy day.

Generali

Loughton_Monkey wrote: »

Any links? Would like to see any comment or analysis with this.

Superficially looks rather dire!

I wonder if it includes pension 'savings' - or house equity. I assume not.

Personally, I distinguish between secured debt (basically mortgages and HP) and unsecured debt (credit cards and loans/overdrafts).

One would have thought that the recent recession would have represented a very loud 'knock on the door' to people to put something away for the next rainy day.

The start comes from my knowledge as an economist, the graph comes from ft alphaville, a blog on the FT website.

Pension 'savings' are generally purchases of assets. Increases in house prices are similarly an increase in net asset value but not saving.

michaels

Can anyone shed any light on whether mortgage capital payments or equity withdrawal are included in the numbers?

For example I could use a surplus 100 quid to overpay the mortgage or invest in a cash ISA - to me they are both equivalently 'saving'.

Loughton_Monkey

Coincidentally, the savings ratio is alluded to in today's release of the BOE Minutes.

Full minutes here:

http://www.bankofengland.co.uk/publications/minutes/Documents/mpc/pdf/2014/mpc1401.pdf

16. The recovery in growth over the year to 2013 Q3 had largely been driven by household spending. Following the data revisions, quarterly consumption growth over this period was estimated to have averaged 0.7%, in line with its long-term average. With little growth in household income over this period, the growth in household spending had been associated with a fall in the saving ratio from almost 8% to just over 5% of household income. The decline in the saving ratio was likely to have reflected a number of factors including: increased optimism about future incomes; higher asset prices; reduced uncertainty and an associated reduction in precautionary saving; and increased credit availability and lower loan and deposit interest rates. While it was difficult to estimate precisely the relative contributions of these various factors, it seemed unlikely that any would drive a similar fall in the saving ratio over the coming year. Consequently, maintaining the recent rates of consumption growth would require a sustained pickup in real income growth, preferably underpinned by stronger productivity growth.

A translation could loosely say..."It's all getting better innit? Wages will go up innit? Aint getting nuffink in the bank, might as well spend it. If necessary, I can borrow cheaply...."

... large gin & tonics all round....

coastline

Lloyds usually release a yearly review....2012.

http://www.lloydsbankinggroup.com/media/pdfs/LTSB/2012/0206ValueofUKhouseholdsavings.pdf

http://www.theguardian.com/money/2013/feb/25/millions-britons-without-future-savings

vivatifosi

Generali wrote: »

However, there is a caveat as the Government is looking at increasing the minimum wage by 11%. The recession is over and things are getting better so companies can afford it or so the argument goes. That could increase the savings rate dramatically, if only by reducing borrowing.

I find the increase interesting. I think people who do not receive benefits, such as younger singles, will experience a net benefit. However for those on other benefits, could this not push the government burden down a bit if the thresholds do not raise accordingly? In other words could it be the state that gains from reduced benefit payments, rather than the individual gaining from an overall increase?

I don't know the answer and haven't read around this, but would be interested to hear what others think.

HAMISH_MCTAVISH

Generali wrote: »

However, there is a caveat as the Government is looking at increasing the minimum wage by 11%. The recession is over and things are getting better so companies can afford it or so the argument goes. That could increase the savings rate dramatically, if only by reducing borrowing.

Not to mention falling unemployment will also, at some point, result in rising wages throughout the pay spectrum....

michaels

vivatifosi wrote: »

I find the increase interesting. I think people who do not receive benefits, such as younger singles, will experience a net benefit. However for those on other benefits, could this not push the government burden down a bit if the thresholds do not raise accordingly? In other words could it be the state that gains from reduced benefit payments, rather than the individual gaining from an overall increase?

I don't know the answer and haven't read around this, but would be interested to hear what others think.

I mentioned this on another thread, possibly specificaaly about the minimum wage suggestion? I know a lot of people for who any increase in pay results in them keeping 5-25% and the resy mostly disappearing in the form of lower benefits (plus a bit of tax/NI) lump in employers NI and it could basically be effectively a tax on companies....