Prices of goods and services have soared amid the economic turmoil with consumer prices 10.1% higher in July than previous year
One in four working households with savings is now dipping into them to meet rising living costs, according to a report from Legal & General.
The Deadline to Breadline report found that a further 30% of working families with savings anticipate they will need to do so in the next year.
The UK economy has been battered by the global energy crisis brought about by the ongoing war in Ukraine.
Prices of goods and services have soared amid the economic turmoil with consumer prices 10.1% higher in July than previous year.
The chancellor’s mini-budget announced last week has made the situation worse with the sterling hitting a record low against the dollar.
As the economic squeeze continues, Legal & General said many households will likely rely on savings built up during the pandemic to cover soaring costs.
The average working household currently has £2,400 in savings and this equates to less than a month of basic expenditure for the average family if they lost their income and were pushed to rely on their savings.
According to L&G, households estimate they need £12,100, or nearly five months’ worth of basic household expenses set aside to feel financially secure.
However, it found that only three in 10 working households (30%) have this set aside, and pressure to dip into savings will likely see this number fall.
L&G said based on current savings patterns with the average working household saving just over £300 a month, it would take three years to reach the desired financial safety net and nine years to put aside a year’s worth of essential spending. However, two-thirds (64%) of all households that currently save have either already decreased or stopped their savings habit altogether (31%). 34% are expected to do so due to increased living costs.
L&G said there are also a growing number of people, nearly 1.9 million households, who cannot put aside any money at the end of the month – an increase of 330,000 since 2020.
And this is likely why 16% of households have no savings at all in case of emergency.
With the cost of basic essentials on the rise many households will find themselves having to make difficult choices and dipping into savings is likely to become more common. This is a far cry from the five-month financial safety net that people hope for, said Bernie Hickman, CEO, Legal & General Retail.
Hickman added: It can be concerning for people to feel like they have nothing to fall back on in times of difficulty. While dipping into savings is inevitable for some, there are also steps people can take to try to control their costs as much as possible by checking their regular outgoings and subscriptions, shopping around for discounts and deals and by making sure they are taking up free financial guidance services like MoneyHelper.