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By David Pawsey | Published Oct 08, 2009

Britons abandon spending in favour creating a financial safety net

Charles Davis, an economist for CEBR, said: "Households are saving much more of their take home pay or using it to pay off debt. The savings ratio jumped to 5.6 per cent in the second quarter, up from 3.9 per cent in the first quarter and 2.3 per cent a year earlier."

Between 2000 and 2006 the savings ratio had steadily declined from just below 7 per cent to about 1.5 per cent, according to the CEBR.

Mr Davis said: "The savings ratio averages 6.4 per cent in the long-term but during the five years leading up to the recession it averaged just 2.9 per cent."

Figures released by the Office for National Statistics have revealed that the household savings rate, as a per cent of available funds had steadily increased in the last 18 months.

The British Bankers' Association said households lowering their debt and increasing savings in order to have a safety net was a trend that was to be expected during a recession.

Lesley McLeod, executive director of communications for the BBA, said: "That is quite common if people are maybe a little bit worried about the economic outlook, they do not take on additional credit, they put money away or they pay off their debt.

"Certainly we have seen there has been reduced amount of personal credit and we have seen people paying off debt."

Andrew Brigden, senior economist for City-based financial research firm Fathom Consulting, said the savings ratio was now at its highest since 2003.

He said: "In the early 1990s recessions it reached double digits and we think it is going to do the same this time, possibly within a year or so."

Robert Sinclair, director of the Association of IFAs, said people were now being a lot more careful with their income.

He said: "Clearly it gives an opportunity for IFAs to look at what they should do with this money both in terms of protection and saving for the longer term."

The figures were released as Zoopla.co.uk, an online house valuation service provider, revealed the value of the total residential housing stock in Britain, had risen by £250bn, to £5.25 trillion, between March and September.

The latest figures from Zoopla showed that the average home in Britain is now worth £203,622, up £10,501 since March.

Alex Chesterman, chief executive of Zoopla, said: "While we are still long way from the values seen before the credit crunch hit, house prices have begun the road to recovery and there are now a lot less homeowners with negative equity than there were six months ago."

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