Britons are increasingly hoarding physical cash amidst ongoing economic uncertainties, with the Bank of England's chief cashier, Victoria Cleland, revealing this trend at the recent Cash in the UK conference. She highlighted that UK households are building a cash contingency pot, reminiscent of behaviours observed during the Covid-19 pandemic and subsequent cost-of-living crises. According to the latest data, the value of banknotes in circulation has surged by 23% since before the pandemic, a notable increase given that the frequency of cash transactions has diminished significantly.
While cash transactions accounted for just 12% of payments in 2023, the total amount of cash circulating has reached an impressive £86 billion. This paradox stems from both an emerging economic caution and a strategic choice to maintain cash as a safeguard against potential disruptions. The Bank of England has reported that, although cash usage has declined, demand for physical notes has remained strong, driven in part by concerns over reliability in digital payment systems. Cleland’s comments echoed similar sentiments expressed during a recent surge in ATM withdrawals, where Nationwide reported a 10% rise in cash withdrawals in 2024 compared to 2023.
The motivations behind this trend reflect broader societal changes. With businesses increasingly adopting cashless models for efficiency, consumers are turning to physical cash as a store of value. This behaviour has intensified due to geopolitical uncertainties such as the war in Ukraine and economic turbulence linked to trade policies. In fact, recent emerging reports indicate that many consumers are using cash for budgeting, particularly during periods of high inflation when the cost of living has escalated. Notably, the return of cash to pre-pandemic levels reflects both comfort in physical money and a response to inflationary pressures, making it a staple in financial strategies for many households.
Interestingly, the rise in cash hoarding is not unique to the UK; similar behaviours have been noted in other European countries, including Spain and Portugal. There, consumers resorted to cash transactions during power outages that disrupted electronic payment systems. This corresponds with Cleland's assertion that during crises, individuals often prefer to have tangible money readily available. Furthermore, survey data indicates that nearly 60% of adults in England and Wales keep cash at home, reaffirming a collective inclination towards physical currency as a financial buffer.
Analysts have pinpointed a concerning trend in the long-term neglect of cash infrastructure, as many businesses increasingly refuse to accept physical payment. The closure of cash-accepting channels poses a challenge for consumers reliant on this payment method, particularly those with limited access to digital banking. Campaigners and politicians are voicing the need for regulations mandating retailers to accept cash as an essential part of the consumer landscape.
As the economic landscape continues to shift, the remnants of pandemic savings remain a crucial element of consumer behaviour. Reports suggest that many Britons still retain substantial sums in cash, which, if invested, could yield higher returns. With £430 billion in accessible cash savings potentially left untapped, financial experts urge a reconsideration of how such funds could be utilised, highlighting the importance of making informed financial decisions amid market volatility.
In summary, while the shift towards digital payment methods has become the norm, the enduring popularity of cash among British households reveals a complex relationship between security and spending in times of uncertainty. The concurrent increase in cash hoarding and digital reliance paints a nuanced picture of the changing dynamics in consumer finance, one where the dual existence of cash savings and digital transactions will likely continue to evolve in the coming years.
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Source: Noah Wire Services