Inflation wipes out pandemic savings of six in 10 households

THE majority of families have spent all their pandemic savings as inflation forces people to dip into rainy day funds, research suggests.

Six in 10 households have spent all their savings to “maintain their lifestyle”, the Centre for Economics and Business Research (CEBR) said.

People earning up to £50,000 will have now blown all the money saved up during 2020 and 2021 unless they have cut back on spending. Families are being forced to spend savings to stand still as the cost of everything from energy to food climbs rapidly.

Average household spending power, which looks at how much families have to spend after taxes and essential bills, has fallen from £243 a week in 2021 to a low of £201 in October last year, according to the CEBR’S Income Tracker, which is produced with Asda.

The typical household had to spend an extra £1,500 just to maintain their standard of living last year, the think tank said. Most families also spent an estimated £900 on things such as holidays and hospitality as they made up for time lost to the pandemic.

The combined £2,400 of extra outlay would have wiped out the previous two year’s savings for all but the highest earners. Even people who earn between £50,000 to £100,000 are likely to have spent about half of their pandemic savings to maintain living standards.

Only those earning above £100,000 have been relatively unaffected, drawing down just 10pc of pandemic savings on average, the CEBR said.

Savings rose dramatically during the pandemic as the shutdown of hospitality and retail businesses and the ban on commuting left people with more money at the end of the month.

Households saved an average of £5,200 during the pandemic, according to the Office for National Statistics, though the figure varies greatly between high and low earners. Six in 10 households saved £1,000 or less, the CEBR estimated.

The think tank’s findings suggest families will be forced to slash their spending and lower their standard of living in the year ahead unless wages increase. It said the poorest 20pc of households, who had barely saved anything over the pandemic, immediately saw a drop in their standard of living as inflation soared last year.