Cost of living: Scots among hardest hit as inflation and rising rates squeeze savings

Headlines have been dominated by the cost-of-living crisis for more than a year now, and a new study lays bare the impact of soaring inflation and rising interest rates on personal finances across the UK, with the prospect of more pain before things ease up.

The comprehensive report by investment platform Hargreaves Lansdown suggests that the crisis has hit hardest in the north east of England, with Scotland and the south west of England not far behind. The findings indicate that a greater percentage of people in those regions have insufficient cash at the end of each month, while wages there are among the lowest in the UK. Meanwhile, the rising costs of property and mortgage payments have hit particularly hard in London and the south east of England. In London, rising costs are set to eat into surplus cash during the year, so the proportion with sufficient funds left at the end of the month will fall furthest in the UK capital by the end of 2023.

Sarah Coles, head of personal finance at Hargreaves Lansdown, said: “No corner of Great Britain has escaped the horrible squeeze on spending in the past year - and there’s still more pain to come. In some regions, financial resilience has taken a real beating, and while those where average wages are lower are always going to find rising prices harder to cope with, we’re also seeing it take a toll on the areas with the highest wages - in London and the south east. All but three regions will see their savings resilience fall as we go through 2023, and all of them will see the proportion of people with enough cash left at the end of the month drop.”

The amount of savings people had before prices started rising in double digits left some regions vulnerable from the outset, the study notes, particularly north-east England, Yorkshire and the Humber, and the north west of England. Finance experts suggest that, as a rough rule of thumb, people should hold at least three months’ worth of essential outgoings in an easy access account for emergencies. Those three highlighted regions south of the Border have the lowest proportion of people reaching this threshold - at less than three in five.

During 2023, things will get harder in most regions of the UK, Hargreaves Lansdown warns. However, savings resilience will fall furthest in the north east of England, followed by Scotland and the south west. In Scotland, the median amount of cash held was found to be £9,526. Last year, the proportion holding at least three months’ worth of savings was 64.4 per cent, but that has now slipped to 62.1 per cent. In comparison, those figures for the region with the highest median savings - south-east England - come in at £13,637, 70.1 per cent and 70.7 per cent. The north east of England returned just £6,634, 58.5 per cent and 56 per cent.

Hargreaves Lansdown said runaway inflation has “ravaged” the amount of money people have left at the end of the month. In Yorkshire and the Humber only around one in five has enough cash at the end of the month to be resilient, and in the north east, and in the West Midlands, only one in four do. By the end of 2023, inflation will have “taken a horrible toll”, the firm added. The proportion with enough surplus cash to be resilient will drop in every region. It will be around or below one in five in eight out of the 11 regions examined, but will fall furthest in London the south east, the south west and Scotland.

Homeowners have been hit with the double whammy of house price hikes and rising mortgage rates. Some are still enjoying the protection of lending rates that were fixed before the rises began, but over time more and more people will be exposed to higher mortgage payments, making a real dent in their financial resilience, the report warns. Mortgages tend to be a bigger problem for those in areas with higher house prices, which is why London, the south east and the east of England face the most expensive mortgages. In those areas, further rate rises could be “catastrophic” for homeowners’ financial resilience. Hargreaves also identifies some “outliers” - including Scotland, the East Midlands and the West Midlands - which come lower down the table for wages than they do for mortgages. In these areas, mortgages are already likely to be more difficult to cover, which “doesn’t bode well” for anyone having to remortgage onto a higher rate.

In Scotland, the proportion of people with enough cash at the end of the month to be resilient was found to be 28.3 per cent last year, but that figure has dropped to just 20.4 per cent in 2023.

In Scotland, the proportion of people with enough cash at the end of the month to be resilient was found to be 28.3 per cent last year, but that figure has dropped to just 20.4 per cent in 2023.

Coles added: “All but three regions will see their savings resilience fall as we go through 2023. Some will do much worse than others, and overall, people in the north east and Yorkshire and the Humber will suffer particularly badly. In other regions, people are hit by the fact they have more expensive houses and bigger mortgages, so remortgaging will cause them real pain now that rates are higher, In addition, some of the areas with large outgoings are suffering from the fact that rising prices are outstripping wages so dramatically. As a result, those areas with the highest wages are also suffering, including London and the south east.”