Household savings surge as Brexit deadline looms
Despite rock-bottom interest rates, households are squirrelling away more money than ever, according to the Central Bank of Ireland.
Deposits by households in the month of August hit €653m, a full €200m more than in August last year, and the pace of growth was fastest in the past 12 months, at 6.4pc.
Please log in or register with Independent.ie for free access to this article.
Total deposits in the system were €6.6bn higher than withdrawals and most of those went into overnight deposits, including current accounts.
"There's definitely an element of once bitten, twice shy, with consumers not wanting to overexpose themselves in case of another serious downturn, and wanting to be able to access their funds quickly in such an event," said independent economist Alan McQuaid.
At the same time, the Central Bank data showed borrowing was at levels far below the pace of economic growth and wage rises. With the European Central Bank (ECB) set to cut interest rates further, rates of return for savers will shrink even more.
However, even as rates head lower, the ECB has indicated that it will protect most savers from negative rates.
"Unless ECB policy forces banks to charge households to hold deposits, which would be a very dangerous precedent in my view, I can't see this changing any time soon, with deposits set to continue to hit new record highs in the coming months," said Mr McQuaid.
Mortgage lending in August rose by €30m, and the overall figure was €1.1bn higher over the past 12 months, a gain of 1.5pc. Overall loans to households rose just 2pc in the 12 months to the end of August, a rate unchanged since June.
Those figures stack up against 6pc economic growth in the 12 months to end-June and a 3.5pc rise in average weekly earnings in the period.
While the economy here has remained buoyant and there are record numbers in work, consumer sentiment has been hit hard by Brexit.
The KBC Bank Ireland Consumer Sentiment Index for August hit its weakest level since November 2013.
"Far and away, the largest drop was seen in the jobs component of the survey, where roughly one in two consumers now expects unemployment to rise in the next 12 months, while just one in five sees a continuation of the improving trend of the last six years," KBC said.
There is still more uncertainty to come over Brexit, and the UK economy contracted by 0.2pc in the second quarter of the year.
According to new analysis from the Economic and Social Research Institute, a 'hard' Brexit could push the economy here into recession next year.