With the UK plunging into what the chancellor has called an “unprecedented” recession, what can we learn from the downturn in 2008 about the role of cash and its importance to people and businesses under economic pressure?
Cash underpinned the economy and consumer spending habits after the 2008 recession. Will 2020 be significantly different? I’d suggest not.
Cash habits during the last recession
Cash played a vital role during the 2008 recession. According to data from the Bank of England, ATM withdrawals increased significantly to 2,866 million, the highest level since 2001 and the third highest year ever for cash withdrawals in the UK.
This incredible volume wasn’t just a spike. UK consumers’ love affair with cash continued long after the recession was over. LINK data shows that, other than a slight dip in 2010, ATM withdrawal volumes remained at the 2008 level until 2014. Indeed, in the decade following the global financial crisis, the amount of cash in circulation continued to rise from just over £40m in 2008 to approximately £70m today.
Why does cash use rise during a recession?
There is no one answer to this question, but clearly people like the certainty that having cash-in-hand offers during uncertain times. It is the one asset that people feel confident isn’t going to lose value.
Confidence in the security of savings held in a bank will have been shaken by recent reports that the Bank of England could consider negative interest rates in the fight against the economic downturn. While this is unlikely, cash-in-hand would be the best option for those in severe economic duress, as it wouldn’t be subject to the shrinkage that negative interest rates bring.
Consumer confidence is a major factor in defining the length and depth of any recession, and in recent months we have seen just how fragile this can be. With TSB’s continued outages, alongside Wirecard’s spectacular fall from grace making funds on deposit inaccessible, will consumers’ faith in digital banking and payments hold firm? Or will cash remain the safe, resilient option for those looking to secure their finances?
What does this mean for the future of cash?
Lockdown gave rise to a media frenzy over the death of cash, but Cardtronics data showed that while the number of ATM withdrawals fell by 58 per cent, the average transaction value was up by 20 per cent. And, as lockdown restrictions have eased, cash usage is trending upwards once again. LINK’s latest figures show withdrawals were back to 70 per cent of their 2019 levels, while the amount of money withdrawn in July was also back up to 70 per cent of the levels of last year.
Looking more broadly, Moz data shows that there were 55,000 searches for “ATM near me” in the UK in July. Meanwhile, the Post Office reported cash deposits up 27 per cent overall, with business cash deposits up by 63 per cent — a return to pre-Covid levels.
History has a habit of repeating itself, and while we will not see a spike of the magnitude of 2008, cash-use is rising once again. There is nothing to suggest that it won’t continue on its current trajectory and perhaps move past pre-Covid levels to reach the highest levels we have seen in years. Cash remains a safe harbour for many in times of economic crisis — and more often than not, for good reason.
Main image credit: Getty