Britain’s savings story is worse than you think
The frailty of the UK's savings landscape presents a significant concern for currency traders, as British households have effectively transitioned into net borrowers when adjusted for pension contributions and housing investments. As highlighted in research by James Smith, the actual savings ratio, which is misleadingly reported at 8.8%, masks a troubling financial reality that renders consumers more vulnerable to economic shocks compared to their European counterparts. With the potential for rising energy costs and a focus on the sustainability of pension systems, this may weigh heavily on GBP's performance in foreign exchange markets. Per the full note , the implications of a fragile consumer base could result in increased volatility for the pound, especially as inflationary pressures persist.
What the desk is arguing
The essence of the desk's view posits that the UK's genuine savings crisis could lead to further depreciation of GBP against stronger currencies. James Smith's analysis points to a negative savings ratio when accounting for essential expenses, indicating that British consumers are fundamentally ill-prepared to handle economic downturns. This fragility suggests a potential weakening of GBP as consumers grapple with the fallout from rising energy prices and insufficient pension provisions.
The implications are stark: with consumer debt rising and savings almost nonexistent, UK households are likely to pull back on spending, leading to broader economic implications. As Smith points out, the discrepancy between UK savings and those in Europe could mean heightened vulnerability for the British economy and, by extension, the pound.
Where it sits in our coverage
While our internal coverage doesn't present concrete targets, it's worth considering the opinions of major firms like jpmorgan, which positions the GBP at 1.10 by March 2026, and bofa forecasting a more cautious 1.04. This divergence underscores the uncertainty around the pound's trajectory in light of worsening consumer sentiment.
Given the current analysis, our reading aligns with these projections, implying that any substantial moves from 1.04 to 1.10 will likely depend on domestic economic catalysts and sentiment shifts within consumer markets.
How other firms see it
Firms such as jpmorgan and bofa offer contrasting views, highlighting a potential clash in market sentiment towards GBP given the risks outlined above. This divergence could translate into volatility in GBP pairs, especially with regard to the EUR/GBP trajectory, as it reflects broader economic health across Europe versus the UK.
Traders should keep a close eye on how changes in UK consumer habits might influence their intermediate positions as well as how this feeds through to the Bank of England's decisions influenced by inflation and consumer behavior metrics.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01UK households have a negative savings ratio when adjusted for key pillars like pensions.
- 02Rising energy costs will likely strain UK consumer finances further, presenting risks to GBP.
- 03Divergent targets from major banks signal uncertainty in GBP's near-term performance.
- 04The impact of consumer spending on overall economic health will be crucial for currency traders.
Market implications
As markets digest this sentiment, traders should remain cautious around key levels, particularly if GBP/USD approaches the 1.075 mark. Given the potential for fluctuating energy costs and the upcoming pressures from consumer sentiment, this could be a pivotal period for positioning in GBP pairs.
Risks to this view
Any reversal in GBP sentiment may arise from unexpected fiscal measures by the UK government aimed at stabilizing consumer finances or a significant global economic improvement that boosts spending capacity. Additionally, if pension reforms lead to increased consumer confidence, this could also support GBP valuations.
Opinions Opinion by James Smith Britain’s savings story is worse than you think Published 10:10 United Kingdom UK households have a negative savings ratio once the effect of pension saving and housing investment is stripped out, making British consumers considerably more vulnerable to a cost of living shock compared with their European neighbours Once debt repayments are included and inflows into pension funds are ignored, British households actually don’t save anything at all – in fact, they're more often than not net borrowers What if I told you the UK had a negative savings ratio? That Brits are consistently spending more than they earn? That might all sound a bit strange, looking at the UK’s headline savings ratio – which, at 8.8%, is both above pre-Covid levels and well above the depths reached at the start of the 2022 cost of living crisis.
Yet our analysis suggests that is highly misleading. It overstates the ability of British households to absorb the cost of living shock. And more importantly, it suggests UK consumers are significantly more vulnerable to the mounting energy crisis than just about anywhere else in Europe.
It all comes down to pensions. Plans to curtail future increases in the state pension, via changes to the infamous triple lock, have shone a fresh spotlight on the UK's comparatively frugal retirement provision. The net replacement rate – the value of pension entitlements relative to individual net earnings – is below both the OECD and EU averages.
Unsurprisingly, only 17% of Brits believe the state pension will provide adequately for retirement, according to our recent survey of European consumers . That compares to an average of 34% across Europe. This means private pension saving, much of it via workplace schemes, plays a more significant role in household saving than elsewhere on the continent.
To understand why, and to get a better sense of what households actually save by choice out of available income, we strip the headline savings figure back into three stages: first removing the impact of pension contributions, then housing investment, and finally pension-related investments. Adjust for pension contributions and the UK's savings ratio halves Data is for 2024 as 2025 releases are incomplete Source: Macrobond, ING "> Data is for 2024 as 2025 releases are incomplete Source: Macrobond, ING Step 1: Remove pension contributions Pension contributions are hugely relevant to the UK’s savings ratio, which measures the gap between households’ “total resources” and spending. Total resources means gross disposable income, plus net pension contributions.
Those contributions are valuable. But they aren’t much help when the cost of living bites today. While individuals may have some discretion over how much of their income goes into workplace pensions, for example, it’s not an obvious lever to pull – nor is it something that’s always under their full control.
So, when thinking about the savings ratio, it makes sense to look at what households are putting away from their disposable income alone. For most countries, this doesn’t make much difference. But for the UK, the impact is dramatic.
That headline savings ratio of around 9% suddenly goes down to 5% once pension contributions are cut out. Compare that with Germany, which even under this alternative measure had a savings ratio of 17% in 2025. But the story doesn’t stop there.
Two-thirds of UK gross savings goes towards investment in housing and other fixed assets Source: Macrobond, ING "> Source: Macrobond, ING Step 2: Strip out housing investment Savings have two destinations. They can be invested in the upkeep or improvement of houses and other fixed assets. That accounts for around two-thirds of gross savings, a similar proportion to the rest of Europe.
It’s also pretty steady over time and doesn’t tend to vary within cycles. The rest goes into financial assets or paying off debt. This is what most of us are really thinking about when it comes to household saving.
In the eurozone, our team has highlighted that financial saving is becoming more significant. The financial savings ratio (i.e., the share of household resources left for buying financial assets or reducing debt, after spending on housing) stood at 6% for the eurozone in 2025. Not only is that above pre-pandemic levels, but it’s risen above the US rate, too.
The same is true in Britain, though its financial savings ratio is lower at 4.2%. The major difference, however, is where those financial savings end up. Britain’s financial savings ratio is lower than elsewhere in Europe Financial savings ratio is calculated from the national accounts as ‘Net lending or borrowing as a share of disposable income’.
Net lending or borrowing is gross savings minus fixed capital investment and capital transfers such as capital taxes, investment grants, etc. This is therefore the share of disposable income that is left over for financial assets or liability accumulation. Source: Macrobond, ING "> Financial savings ratio is calculated from the national accounts as ‘Net lending or borrowing as a share of disposable income’.
Net lending or borrowing is gross savings minus fixed capital investment and capital transfers such as capital taxes, investment grants, etc. This is therefore the share of disposable income that is left over for financial assets or liability accumulation. Source: Macrobond, ING Step 3: Ignore financial flows into pension-related assets Our big finding for the eurozone is that consumers now allocate as much of their savings to investment funds and ETFs as to deposits.
That’s a recent development and is a stark contrast to the previous decade, where flows into deposits outpaced investment funds by three to one on average. That points to a growing appetite for DIY investing. In the UK, the data shows it’s the complete opposite.
Here, a vast amount of financial saving ends up in pension funds. Not surprising, given what we said earlier about the important role of pension contributions in the overall savings ratio. And not helpful, either, in times of economic strain.
Instead, households are persistent net sellers of both investment trusts and equities, according to comparable national account data. And it means that, once debt repayments are included and inflows into pension funds are ignored, British households actually don’t save anything at all. And in fact, they are more often than not net borrowers.
The lion's share of UK saving flows into pension funds Source: Macrobond, ING "> Source: Macrobond, ING Adjusting for pension contributions and inflows into pension assets, UK households are a net financial borrower The orange line is calculated by dividing household net lending/borrowing by gross disposable incomes plus adjustment for change in pension entitlements. The blue line is calculated by dividing household net lending/borrowing minus purchases of Insurance, Pension & Standardised Guarantee Scheme assets, by gross disposable income Source: Macrobond, ING calculations "> The orange line is calculated by dividing household net lending/borrowing by gross disposable incomes plus adjustment for change in pension entitlements. The blue line is calculated by dividing household net lending/borrowing minus purchases of Insurance, Pension & Standardised Guarantee Scheme assets, by gross disposable income Source: Macrobond, ING calculations The broader context Admittedly, everything we’ve said here is based on the national accounts, which are just one important, though imperfect, gauge of household saving behaviour.
But it tallies with data on the UK’s long-running tax-free Stocks & Shares ISAs. While participation in Stocks & Shares ISA accounts has increased over time, the value of subscriptions to them has shown limited growth since the pandemic, while cash ISA subscriptions have risen much more strongly. Separately, Bank of England data on the value of money held in household bank accounts also shows a fall of 8% in real terms since mid-2021.
And real-terms saving is undershooting the pre-pandemic trend. So what’s the conclusion? It’s not that the household savings ratio in the UK can’t fall as cost of living pressures mount.
In fact, that's almost certainly what will happen. But in practice, just as we saw in 2022, that would imply that, once the effect of pension saving is stripped out, households would become more significant net financial borrowers. Crucially, this is something that is unlikely to be the case elsewhere on the continent.
Content Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more United Kingdom Savings ratio Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download In this opinion Step 1: Remove pension contributions Step 2: Strip out housing investment Step 3: Ignore financial flows into pension-related assets The broader context Author James Smith Developed Markets Economist, UK James is a developed market economist, responsible for ING's view on the UK economy and Bank of England.
He graduated from the University of Bath with a degree in economics and joined ING in 2015.
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