Personal deposits end 2023 lower than a year earlier for the first time on record

Total personal deposits held in retail banks fell in each month from January to November 2023 and finished the year two per cent lower than a year previously, according to UK Finance's Household Finance Review for the fourth quarter of 2023, published in March 2024¹. The review describes this as the first time personal deposits have ended a year lower than a year earlier on record¹.

The review attributes the fall to households drawing on savings to meet higher expenses. It states that "with cost and rate pressures continuing, households are drawing down on their savings to meet higher expenses", and adds that there is as yet no sign that households are turning to credit cards or other more expensive unsecured credit to finance higher outgoings¹.

The wider household picture in the review is one of weak borrowing and subdued spending. Mortgage borrowing was very weak in the fourth quarter, as it had been throughout 2023, and UK Finance says new mortgage rates remain much higher than in recent years, which combined with cost-of-living pressures continues to present a significant barrier to affordability¹. Mortgage arrears rose for the fifth consecutive quarter, though the review notes the level remains very low by historic standards¹. There were 1,150 mortgage possessions in the fourth quarter, a number that "has barely changed through the whole of 2023"¹.

Activity in the mortgage market split sharply by type. First-time buyer numbers were down 22.4 per cent and mover numbers down 26 per cent, while internal product transfers, where affordability tests are not required, saw annual growth of 17.1 per cent and were the sole area of mortgage business growth in the year¹.

Source: UK Finance, Household Finance Review Q4 2023¹

The review also sets out the economic backdrop. It says the UK economy contracted by 0.3 per cent in the fourth quarter of 2023, following a 0.1 per cent contraction in the three months to September, giving growth of 0.1 per cent across 2023 as a whole¹. Consumer price inflation stood at four per cent at the end of 2023, down from a peak of over 11 per cent, and held there in January 2024¹. Consumer confidence remained in net negative territory at the end of the year, including households' intentions to make major purchases¹.

Why it matters for households

The fall in personal deposits means the total stock of money households hold in retail bank accounts was smaller at the end of 2023 than a year before, with the decline running month by month from January to November¹. For households already spending more on food, energy and borrowing, the review's finding is that the gap is being met from savings rather than from credit cards or other unsecured borrowing, which it says shows no sign of being used to cover higher outgoings¹. Anyone holding a variable or fixed rate savings account is affected by the overall direction of deposit balances, though the review does not break the two per cent fall down by account type or by provider. More on how savings accounts work is set out in our guide to savings.

On borrowing, the review's figures cover mortgage holders rather than renters or those without a mortgage. Arrears rose for a fifth consecutive quarter, and UK Finance says it expects continued pressure on mortgage payments through 2024, while noting arrears remain very low by historic standards¹. Possession numbers, at 1,150 in the fourth quarter, were broadly unchanged across 2023¹. The 22.4 per cent fall in first-time buyer numbers and 26 per cent fall in movers describe completed transactions in 2023, not asking prices or listings¹.

What happens next

UK Finance says forward indicators suggest an uptick in lending in the first quarter of 2024, although from a very low base, and that it expects another challenging year for the mortgage market dominated by affordability constraints¹. It expects a lower increase in arrears in the first quarter but continued pressure on mortgage payments through 2024, and expects possession numbers to remain low through 2024 and 2025¹. The review notes that swap rates moved downwards in the early part of 2024, while new mortgage rates remain much higher than in recent years¹.