The £100bn lockdown bonus... extra cash saved by UK families
FAMILIES have built up £100billion of ‘excess savings’ in lockdown and cannot wait to use it, a senior Bank of England official has claimed.
An imminent spending spree could help the economy to recover more quickly than forecasters have predicted, the Bank’s chief economist Andy Haldane said.
Mr Haldane said there is huge ‘pent-up demand’ following the winter lockdown. As Christmas shoppers flocked back to high streets in England after restrictions were loosened last week, the economist said the desire to spend was still evident throughout November.
‘Consumer spending has come back at real pace,’ Mr Haldane explained. ‘Households have shown unbelievable resilience.’
He added that when restaurants, pubs and non-essential shops were closed, many people spent more on other things instead.
‘People have shown their willingness to [be flexible] where they spend and how they spend. They are not going to the pubs and restaurants, but they have switched to takeaways and patio heaters.’
Mr Haldane said that between April and June, the Office for National Statistics’ savings ratio – which measures how much of our disposable incomes were set aside – rose to 29 per cent.
The equivalent figure was only 6.8 per cent for that period last year. The new ratio is more than twice as high as the previous record of 14.4 per cent, set some 27 years ago.
Mr Haldane admitted the new figure had not been ‘evenly balanced’ across society. ‘Nonetheless it did mean there is a pool of excess savings. As people’s incomes held up and spending was restrained, they have amassed around £100billion of excess savings.’
Mr Haldane said the Pfizer vaccine arriving in Britain could deliver a huge psychological boost to customers and businesses who had been reluctant to spend or invest.
While some people are already spending some of their excess cash, much more remains in accounts across the country.
‘People are using their involuntarily accumulated savings on a new house or a new car,’ Mr Haldane said. ‘[But] plenty of that pent-up demand is still in the tank... there are plenty of those savings still to be used.’
He believes that many will be keen to get back to pubs and restaurants following enforced closures. He said: ‘There will be some catch-up in social spending. There is plenty of scope there for the vaccine to release more of that pent-up demand.’
The £100billion treasure chest is concentrated among the better-off, who carried on receiving most of their incomes during lockdown but saw their spending plunge.
Many middle- class professionals have been able to work from home – meaning no commuting costs. In addition, they have been unable to spend cash on the typical luxuries such as new clothes or holidays.
Those lower down the income scale have not saved as much, if anything. Many have lost their jobs or become much worse off because their working hours have been slashed.
Figures from the Institute for Fiscal Studies show that middleclass families had, on average, an extra £350 a month in their bank accounts between March and September. The poorest households were £170 a month worse-off.
‘Spending back at real pace’
QUITE apart from the immense damage done by Covid to our health, the virus has inflicted a terrible toll on the economy.
Restrictions to stop the bug’s spread foreshadowed Britain’s worst slump in 300 years. Businesses are toppling like dominoes and, once furlough ends, millions will be consigned to the dole.
Mercifully, this gloomy cloud has a silver lining. For, as Bank of England chief economist Andy Haldane reveals in today’s Mail, bank accounts are bulging with record savings.
During lockdown, with fewer outgoings and less opportunity to spend, households have built up a £100billion treasure chest – equivalent to a whopping 5 per cent of GDP.
Some, of course, is squirrelled away as a cushion against unemployment or pay cuts. But the vaccine, coupled with loosened restraints, promises to unleash a tsunami of pent-up spending.
Mr Haldane believes hordes of consumers, determined to put this year’s privations behind them, will embark on an ecstatic spree on retail, restaurants, parties and travel. In tandem, a surge in business confidence could trigger bumper investment, with potentially stunning results.
Yes, tough times lie ahead. But if the Government swiftly hands back our freedoms, Britain’s indomitable army of shoppers can light the economic touchpaper, dragging us from the doldrums of despair to a remarkable recovery.