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Falling household savings and rising heat pump sales paint picture of uneven UK economic recovery - PwC

23 Feb 2022

  • High post-lockdown spending combined with cost of living pressures set to see UK household savings rate decline to pre-pandemic level according to PwC’s Key Trends in 2022 

  • Rising energy bills among the drivers behind a record number of heat pump sales, with 2022 sales set to triple compared to 2020

  • Four out of every ten directorships in the FTSE 100 will be held by women by end of the year

A significant fall in household savings, a rise in heat pump sales and shifting population health metrics will be among the key areas to watch over the course of 2022 as the UK economy continues to emerge from the impact of the Covid-19 pandemic, according to fresh analysis by PwC.

The UK household savings rate is set to dramatically fall by 70% (or £4,000 less) on average compared to the highest levels during the pandemic, and will fall to an average rate of around 6% of household income, or even further if downward pressures continue.

UK population health metrics are also likely to highlight the social and impact of Covid-19 lockdowns, with a record 30% of adults set to be classed as obese and 1 in 3 children classified as obese or overweight.

Hoa Duong, economist at PwC UK, says,

“As the UK economy continues to re-open and recover in 2022, we are starting to see some of the impacts of economic and social uncertainty play out in a variety of ways.

“A combination of post-lockdown spending and the rising cost of living will eat into household savings rate, which will decline back to pre-pandemic levels. While this stabilisation is to be expected, there could be a risk the rate will decline further in 2023 if inflation continues, and real wage growth tails off.

“Meanwhile, health metrics - such as growing levels of obesity - point towards wider economic and social disruption caused by the pandemic: ranging from the closure of gyms and fitness classes but also linked to increased stress and job insecurity. Yet, at the same time, increasing sales of heat pumps, for example, highlight that consumers are maintaining a focus on environmental and social concerns even during times of economic uncertainty.

“Given the polarised nature of the UK’s economic recovery so far - across income groups as well as regions - these wider social indicators should be considered by policymakers as they seek to address both the immediate, and longer-term, impact of the pandemic on the UK population.”

Savings rate to decrease

There will also be a dramatic shift in UK household savings rate over the course of 2022. While the savings rate reached a record high of around 24% in the second quarter of 2020, driven by the significant restrictions of the first lockdown, this rate will fall by 70% (or £4,000 less) in real terms this year.

Hoa Duong, economist at PwC UK says,

“A fall in household savings rate from the record levels seen during the pandemic is obviously a good sign of economic recovery, as consumers spend again on social activities and other luxury goods. Yet it is concerning that the savings rate this year will fall to the  pre-pandemic levels of around 6%.

“This fall highlights the impact of the growing cost of living, especially with significant increases to energy bills and recent interest rates rises. While the savings rate has started to stabilise, there remains potential for further volatility as these pressures continue.”

Growing ESG expectations are driving real economic impact in 2022 

While there are significant macroeconomic uncertainties for the UK economy in 2022, PwC does expect growing consumer and investor expectations around ESG goals to continue to drive real change for UK business.

For instance, PwC forecasts there could be a record number of heat pumps sold across the UK in 2022, potentially triple the number sold in 2020. Early estimated sales for 2021 based on manufacturing orders of heat pumps are already twice the 2020 sales (67,000 and 32,000, respectively). The UK government is currently aiming for 600,000 pumps to be installed by 2028. 

“The high cost of installation has proven to be a significant disincentive for many when it comes to heat pumps,” says Hoa Duong. “Yet a combination of government grants, the possibility of a ban on new gas boilers and growing energy costs are starting to change that calculation for many. Importantly, there are also signs that consumer attitudes towards more environmentally friendly lifestyles are growing, despite economic uncertainty, and this remains a source of optimism for achieving Net Zero goals,” Duong added.

At the same time as consumer expectations are changing, there are signs of improving gender balance at board level for UK businesses. By the end of 2022 four in every ten directorships in the FTSE 100 will be held by women. 

Hoa Duong says,

“There are reasons to be concerned that the pandemic has had a disproportionately negative impact on women in the workforce. Yet the improving representation of women at the highest levels of business is a cause for optimism, and a demonstration that growing pressure from government and investors can drive real change.”

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David Bowden

David Bowden

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