Families may splash savings in ‘Roaring Twenties’ style

BRITAIN i s on course for another “Roaring Twenties” after the pandemic ends if exuberant families splash the cash saved through lockdown.

Household savings have surged despite the record-breaking recession, which could lead to a remarkable turnaround in the UK’S economic fortunes in the years to come, a leading economist said.

“History in the shape of the Twenties told us, once the [Spanish Flu] pandemic came to an end, also the war to be honest, people were desperate to get out and have a good time,” said Torsten Bell at the Resolution Foundation.

“It is called the Roaring Twenties for a reason. So there are possibilities out there for upside scenarios, even if we shouldn’t be counting on it.”

Family finances have improved dramatically this year, as those with steady incomes found their bank balances rising as they had few options to spend money. In the past decade, households have typically saved between 5 and 10 per cent of their incomes.

But at the height of lockdown that soared to a peak of 28.1 per cent, according to the Office for Budget Responsibili t y. Households have paid down consumer credit debts by about £18 billion since the pandemic began, Bank of England figures show, and stashed away almost £90 billion of extra deposits.

As a result they had money to spend when the restrictions lifted over the summer, helping to power the 15.5 per cent growth in GDP seen over the three months to September.

However, it is far from certain that exuberant spending will become a permanent habit. Instead families may have suffered such a shock from the biggest recession in more than 300 years that they continue to save more and therefore worsen the recovery.

“People have faced this big shock to their livelihoods, being worried about being out of work. Is that going to lead them to save more on average?” said Richard Hughes, head of the OBR.

“That is possible and if so it could be a further drag on the recovery as people want to hang on to more of their savings in case they do end up facing a spell in unemployment.”

The OBR predicts a 15.1 per cent fall in household consumption this year, followed by a rebound of 7.5 per cent in 2021 and 9.7 per cent in 2022. After that, growth falls back below 2 per cent per year for the forecast that runs to 2025.