Inflation has profoundly reshaped the economy by steering people towards the highest savings rate in three decades, alongside a £50 billion reduction in spending, according to the Resolution Foundation.
Household consumption contracted by a greater degree than the fall in real incomes during the cost of living crisis, with the excess cash being deposited in savings accounts, the economics think tank said in a report.
Compared with the final three months of 2019, the final quarter before Covid-19 struck, real household disposable incomes have contracted by 1.1 per cent, or £280 per year. However, so-called real spending has dropped much further, coming down by 4.7 per cent, or £1,200 annually.
The near-£1,000 difference between the two had been channelled into savings, the foundation said,
