People now saving more than they are borrowing

People are saving, rather than borrowing – for the first time in 20 years and despite low interest rates in traditional savings accounts.

Last year, savers put £24bn into deposit accounts, and took out £20bn worth of new loans. It was the first time since 1988, when records began, that savings exceeded new borrowings. The £20bn figure compares with the borrowing all-time high of £125bn in 2004.

Last year, overall savings rose from 2% of household income to 7%, as families drew in their purse strings.This year, the proportion has risen again, to 8%.

Higher unemployment and increased risk aversion in 'austerity Britain' are the causes, said economists.

Peter Spencer, advisor to the Ernst & Young Item Club, said: "People are reducing their borrowings. It's the combined effect of some families not being able to get credit, and other families choosing to pay their debts off."

David Hollingworth, of brokers London & Country, said: "There's been a complete turnaround in the approach of borrowers. Rather than using mortgages as a cheap way of borrowing – effectively using their home as a piggy bank to fund their luxury purchases – they are now looking to pay down debt more quickly.

"They are tightening their belts amid concerns about higher interest rates in the future and questions over the employment market."