Time to Don’t bet on a quick recovery Stay cautious, despite encouragement to spend

Now is a great time to buy Lego as it’s usually cheaper in the summer than at other times of the year. As an example, the Lego City Ski Resort has just plummeted in price from £57.99 to £45 – the cheapest we’ve seen it to date.

This week, Idealo reckon UK consumers will be buying…

I was driving home on Wednesday after a few days in Devon with my family and we were listening to Rishi Sunak’s summer statement.

It struck me that this is a pivotal point in the UK’s economic history, because we’re facing a situation we haven’t really seen before.

The recession we’re in now is unlike others in history. Recessions are usually caused by a rise in interest rates, which are used to slow a booming economy, but this one started with a fall in income, brought about by lockdown.

Simple economics is that one person’s spending is another person’s income. When someone stops earning, it affects a lot more than just that individual – it also has an impact on businesses and stores where that person would usually spend their money, which in turn affects their employees.

The economy is very tightly connected by this flow of money, so when our individual spending is shut off, it has a spiral effect. This is one of Sunak’s biggest worries as he fights to minimise unemployment after the furlough scheme ends.

What’s making the situation even worse is that thanks to the global nature of the lockdown, there’s also been a collapse in the supply of goods. Even if we wanted to spend our money on certain things, are those things available? That is not normal in a recession.

To stimulate an economy and get things moving again, the most common action governments and central banks take is to reduce interest rates, for two reasons.

First, if you’re spending less on your mortgage and debt repayments, you have more to spend on buying things.

Second, if you’re getting a poor return on your savings, you’re more likely to either invest the money or spend it.

Both scenarios get money flowing and an economy growing. The problem is, when you’re at 0.5 per cent and the first move is to drop interest rates to 0.1 per cent, there’s not much further to go. adds money to an economy and governments globally have been carrying out QE since the start of the pandemic.

After that, what’s left is to reduce taxes – which is what we’ve seen with VAT in hospitality and Stamp Duty with property purchases – or use “helicopter money” where the government literally puts money in the hands of the public.

This is like the furlough schemes and the new Eat Out to Help Out Scheme announced on Wednesday.

It all adds up to one of the most aggressive stimulus packages globally.

Only time will tell if it has been enough, but I fear tough times ahead, so get your financial house in order.