Cyprus sparks return to saving

Uncertainty about the economy has led to consumers spooked by banking problems in Cyprus to return to hoarding their cash for a rainy day, according to the Nationwide UK (Ireland) ESRI Savings Index for March.

The managing director of Nationwide UK (Ireland) Brendan Synnott believes consumers have been spooked by the resurrection of the European debt crisis in Cyprus.

“It is possible that the financial situation in Cyprus has contributed to anxiety, since indicators on the Irish economy have been generally positive,” he said.

The index found that proportion of people who believe that now is a good time to save increased to 30%, from 26% in February and 28% this time last year. At the same time, the proportion of people who think now is a bad time to save decreased to 46% from 48% last month.

In a worrying reversal of trends from last month the proportion of people willing to spend their excess money has reversed from a recent high, that had been seen as a sign of the economy recovering.

“It is also worth noting that the increase in preference to spend spare cash, which was recorded last month at 12%, has not been maintained and in March remains at around the same level as a year ago at 9%. The lack the progress in this metric indicates that there is still no sustained evidence of a return in consumer confidence or a consumer demand led recovery,” said Mr Synnott.

The majority of people would still spend any excess money to pay off debts, such as mortgages. The survey found 51% of people, up from 47% last month, would use any disposable income to pay down debts.

A third of people said that they would save the money while, just 6% said that they would invest it.

Overall there was a five point increase in the Savings Index to 88 driven by a 12-point increase in the savings environment sub-index.

The savings environment measures people’s attitude to Government policy on saving and their general attitude to saving. While 55% of people felt that government policy discouraged saving, there was an increase form 5% to 7% in the respondents claiming that policy encourage saving.