Excess savings of about £100bn built up by UK households during Covid-19 lockdowns are now being spent and could speed up Britain’s economic recovery, according to the Bank of England’s chief economist.
Andy Haldane told the Daily Mail there was “huge pent-up demand”, and that a big spending spree could help the economy bounce back more quickly than forecasters expected.
He said the UK savings ratio, which measures how much of disposal incomes is set aside, rose to 29% between April and June, compared with 6.8% in the same period last year. The ratio is more than twice as high as the previous record of 14.4%, set almost three decades ago.
Haldane said the surge in saving had not been evenly balanced across society. While many office workers have saved money by working from home, thousands of other people – especially younger workers and women – have lost their jobs in the hospitality and retail sectors.
“Nonetheless it did mean there is a pool of excess savings – excess because they weren’t planned,” he said. “As people’s incomes held up and spending was restrained, they have amassed around £100bn of excess savings.”
The Bank’s chief economist added: “People are using their involuntarily-accumulated savings on a new house or a new car. [But] plenty of that pent-up demand is still in the tank … there are plenty of those savings still to be used.”
High streets were packed with Christmas shoppers as shops reopened last week. “Consumer spending has come back at real pace,” Haldane said. “Households have shown unbelievable resilience.”
Even during the November lockdown in England or other local lockdowns, when restaurants, pubs, cafes and non-essential shops were closed, many people bought other things instead, such as takeaways and patio heaters, he said.
Haldane also predicted some “catch-up in social spending” although some of the money that could not be spent while pubs and restaurants were shut is “gone and lost forever”. Once vaccines are given to people to protect them from coronavirus – starting in the UK on Tuesday – this spending should accelerate.
Haldane said: “You are not going to go to the pub twice as much when they’re open again, but 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.”
Accidental savers working from home have not had any commuting costs and have been unable to spend on holidays either. The Institute for Fiscal Studies has calculated that better-off families saved, on average, more than £300 a month between March and September, while the poorest households were £170 a month worse off.
Haldane also believes that the pandemic could help improve the UK’s poor productivity by increasing firms’ investment in technology and training in digital skills.