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Savers could be hampering economic recovery

The number of households that are using their money to pay down debts or to boost their savings is on the increase and could be having an adverse effect on the economic recovery.

Worries over prospects for the UK economy and the effects of the forthcoming rises in taxes and VAT have encouraged more people than ever to save rather than to spend, official figures suggest.

The consequence, however, could be to dampen the rate at which the country emerges from the recession.

The level of earnings that is being saved in banks and building societies is at its highest for almost a decade.

In the third quarter of the year consumers repaid £5 billion more than they borrowed, according to the Office for National Statistics (ONS).

While consumer spending edged up by just 0.1 per cent in the same period, the gap between household income and the average amount that households spent rose to 8.6 per cent. Much of that money will have been used to cancel debts or bulk up savings accounts.

The ONS confirmed that the economy shrank by 0.2 per cent in the third quarter, holding it in recession.