UK Retail Savings Market in 2012 and Future Outlook

The impact of new regulations and weak wholesale markets will cause banks to retreat to their core business of collecting deposits. Personal savings will become a key battleground as banks compete to attract deposits as a means of funding their lending operations. In a tough savings environment it is crucial for banks to understanding consumer savings behavior.

Features and benefits

• Understand the developments shaping the UK retail savings market.
• Test internal assumptions driving forecasts through independent third party analysis.
• Understand how market forces will influence the demand for different savings products.
• Understand the motivations of the next generation of savers

Highlights

Consumers will be caught between forces that lower their ability to save and factors that encourage them to save more. The savings market will be boosted as consumers make building up their savings a top priority, the savings ratio is expected to stay high, and falling inflation will eventually allow real incomes to turn positive.

Affordability will remain a major obstacle to saving as the economic recovery will be gradual and dependent on a resolution of the eurozone crisis, inflation will fall slowly meaning real wages are not expected to turn positive until 2013, and unemployment will likely remain stubbornly high.

Banks need to help consumers make the process of saving as easy as possible. Consumers who save regularly each month but do not have a regular savings account offer an opportunity. The popularity of regular savings accounts will increase as consumers try to make saving a regular habit and look to maximize their returns in a tough rate climate.

Your key questions answered

• What were the main developments in the savings market in 2011?
• What are the factors that will affect the savings market in the 2012 and beyond?
• How will consumer desires to increase their savings interact with a challenging economic climate?
• How will the latest consumer behavioral trends affect the products demanded in the retail savings market?
• What are the savings goals of the next generation?

Table Of contents

DATAMONITOR VIEW
Catalyst
Summary

OVERVIEW OF THE UK PERSONAL SAVINGS MARKET
The growth of personal savings was weak in 2011 despite a heightened savings appetite
2011 was a tough year for the UK savings market as household budgets were squeezed
The savings ratio indicates consumers are making an increased effort to save in difficult conditions
Consumer savings were depressed by rising unemployment
The failure of the base rate to rise depressed the rates available on savings products
Housing market fragility caused consumers to spend less and save more
Consumer confidence reached a record low in 2011

UK PERSONAL SAVINGS FORECAST
Personal deposits are expected to make a slow recovery as economic improvements enable consumers to grow their savings
Consumers will be caught between forces that lower their ability to save and factors that encourage them to save more
Affordability issues will depress the growth of personal savings
A large section of consumers do not have savings and have never been able to save anything
Falling inflation could see real incomes turn positive and help boost savings
Rising unemployment will decrease consumers' ability to save
The record low base rate will mean savings will struggle to keep up with inflation
PPI payouts will provide an income windfall and could lead to higher savings
Consumers will show an increased willingness to grow savings
Fear of an uncertain future will lead consumers to increase their savings deposits
Consumer behavioral trends suggest consumers will save more
The savings ratio is expected to remain high and boost deposits
Deposit accounts will remain the UK’s preferred savings vehicle
Consumer willingness to deleverage could reduce the growth of savings deposits

CONSUMER INSIGHT
Consumers who save regularly but do not have a regular savings account represent an opportunity
Goal-based saving will motivate consumers to save
An uncertain future and the low base rate may push savers to opt for long-term fixed rate products
Younger consumers have the best savings intentions
Tougher house deposit requirements will raise savings among consumers aged 34 and under
18–24 year olds will be attracted to the flexibility and accessibility of instant access accounts

APPENDIX
Supplementary data
Methodology
Secondary sources
Forecasting methodology
Further reading
Ask the analyst
Disclaimer

List Of Tables

Table: Household savings ratio, 2008–11
Table: Consumer price index inflation, 2011
Table: Halifax House Price Index, 2011
Table: UK personal deposit balances forecast, 2012–15f

List Of Figures

Figure: The growth of personal deposit balances collapsed following the financial crisis
Figure: The contribution of net inflows to savings deposit growth diminished in 2011
Figure: Personal deposits are forecast to make a gradual recovery between 2012 and 2015
Figure: The tension between ability to save and willingness to save will determine the outlook of the savings market
Figure: Consumer confidence has shown no signs of recovery in 2012
Figure: The household savings ratio is expected to remain high relative to pre-crisis levels
Figure: UK consumers have a diverse savings portfolio, but deposits dominate
Figure: Consumers have been paying off their credit card debt
Figure: 53% of consumers save regularly each month
Figure: An uncertain future and holidays are the main reasons UK consumers save
Figure: The majority of younger consumers intend to increase their saving
Figure: Holidays, future uncertainty, and house deposits are the most important reasons for saving in both the 18–24 and 25–34 age groups
Figure: The largest proportion of 18–24 year olds only save when they have money to spare