British savers withdrew record sums from their accounts last month as interest rates plummeted and more consumers looked to savings to fund their spending, new figures showed.

Net deposits in high street banks plunged by £2.3 billion in January, according to figures from the British Bankers’ Association (BBA) as savers used the money to cover living costs or sought more lucrative homes for their cash. The fall marked the biggest drop in net deposits since the BBA’s records began 12 years ago.

This came as new figures showed that high street sales were better than expected this month and that mortgage lending edged up for the second month in a row.

The CBI said that 27 per cent of high street stores enjoyed improved sales in the first half of this month, while 52 per cent said they had fallen. The resulting balance of -25 per cent is the highest reading since June 2008.

However, retailers are still cutting staff at a record rate, with a balance of 49 per cent reporting that they had reduced their workforce – the highest reading since the quarterly survey began in August 1983. A similar record rate of job cuts is expected for March.

Andy Clarke, chairman of the CBI Distributive Trades Panel and chief operating officer of Asda, said: “February was another tough month and sadly many retailers are cutting jobs as shoppers stay away and the recession deepens. But conditions were not quite as harsh as they were last month and in the run-up to Christmas.”

News for the housing market was also better than expected as mortgage approvals for house purchases edged up for the second consecutive month in January. A total of 23,376 mortgages were approved, up from 22,416 in December. However, this was still 43 per cent lower than January last year. Net mortgage lending also fell, to £2.9 billion in January from £3.3 billion in December and well below the six-month average of £3.4 billion, the BBA said.

At the Institute of Economic Affairs’s annual conference in London, Andrew Sentance, a member of the Bank of England’s Monetary Policy Committee, said lower energy bills had boosted consumer spending power. He added that the recent sharp drop in interest rates may have led to lower mortgage bills for many families. Dr Sentance said, however, that the economy still needed a boost and he became the latest Bank official to endorse the use of quantitative easing – sometimes termed “printing money”.

He said: “A persistent and prolonged period of deflation still remains an outside risk, in my view. But there is a strong case for providing additional stimulus to the economy to head it off more decisively, as well as helping to limit the potential long-term damage to the UK’s supply capacity from a prolonged and deep recession.” He admitted that such a move would be a “step into the unknown”.

The Bank’s desire to take further action is likely to have been boosted yesterday as official figures showed that businesses cut investment at the fastest rate in 18 years in the final three months of last year. Investment dropped by 7.7 per cent between October and December, compared with the same period in 2008. This was the steepest annual decline since 1991.

This has compounded fears that official figures out today will show that the country has fallen into an even deeper recession than first thought. Initial estimates published last month showed that GDP fell by 1.5 per cent in the final quarter of last year, the steepest drop in more than 28 years. Economists now expect this to be revised down to a 1.6 per cent fall.

Howard Archer, of IHS Global Insight, the economic consultancy, said: “Businesses are substantially scaling back their investment in the face of sharply weakening demand.”

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