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Economic history

Andy Haldane at the Bank of England is saying that savings made in the last year could all flood into the market in 2021 and start a ‘roaring 20s’ boom.

I gather the Resolution Foundation (cut from similar cloth to Haldane) think much the same.

I beg to differ.

Pent up demand in 1919 did not lead to sustained growth. The 20s did not roar in the UK.

The “Roaring Twenties” is normally taken to refer to the American economy, not the British.

Then there’s the actual claim about those savings:

As I noted earlier today, the government deficit is matched by a massive rise in household saving this year. But it is assumed that by the end of 2022 households will hardly be saving at all.

How likely is that? Look at household behaviour after 2009 as an indication: savings remained high, and much higher than is now being forecast for 2022 onwards, until 2016. Given all the uncertainties that now exist, I suspect a 4% ratio likely, at least, for a long time to come. That is much higher than forecast, and means spending in the economy will be much lower than the OBR predicts.

That’s Snippa’s. This is Bailey’s:

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.

So, yes, we would expect those savings to be run down, to produce a boost in spending.

29 thoughts on “Economic history”

  1. We had this with some Will Hutton article recently. He said that the British economy “roared” until Churchill introduced the Gold Standard in an attempt to kill all the miners, or something.

    In fact the British economy came off of the massive wartime boom with a huge hangover, which did not really kick in until 1921-ish. The US economy was awash with OUR BLOODY MONEY, which is why that decade was such an express train for them.

    Also, people are now spending their savings because they are all unemployed or sitting on their arses all day looking at stuff on Amazon.

  2. Personal experience and therefore a sample size of 1, but judging by other forums I frequent I don’t think I’m alone in this.

    Next year I’ll be withdrawing all my savings and investments (apart from pension obviously) and having a kitchen extension. British builders, British kitchen, kraut appliances.

    Builders are so busy many can’t be bothered to quote.

    Received wisdom on this is that people who still have jobs and are working from home are spending money that would be going on holidays and commuting on home improvements.

    On a similar note, expect car sales to drop off a cliff soon, and it will have nothing to do with Brexit. If you aren’t driving much there’s no point in having a new car and if your job isn’t secure why commit to two years of PCP payments?

  3. So we have two predictions from two economists (one, self claimed with little justification, is true). Yet they have exactly the same value. Economics is not a predictive science. We will know what happens in 2021 at the end of 2021. Not before.

  4. Ditto. I’ve had a damp problem and have plaster peeling off a wall, and it’s taken a good two months to get a builder. They’re up their eyeballs in work. I’d do the work myself, but *I’m* up to my eyeballs in work.

  5. The car market is going to be an interesting one to follow — must say I’m glad that it’s not my line of business though. I’d agree that *new* car sales are likely to slow significantly once the pent-up demand from showrooms being forced to close for the best part of a year has worked through.

    A small sample size, but a few people I know are considering the “not commuting so much” aspect and the requirements for reliability and fuel economy in a car become less important, so intend to hand their current car back at the end of the PCP term and buy something older but either more fun or more luxurious. A 7-year-old F-type starts at about the same price as a new base-model Focus, and running one for 4,000 miles a year will be cheaper than running the Focus for 24,000 miles a year.

  6. Next year, our builders arrive to install a new kitchen, refurbish two bathrooms, and re-paint the exterior of the house. There is vast pent-up demand in the economy. 2021 will be a good year for brewers and STDs.

  7. Same around here, can’t get tradesmen to show the slightest interest. Doesn’t help that several Poles I know have gone back to Poland.

    I’m watching YouTube videos on how to use a tile-cutter. The problem is that if I get it wrong and break half the tiles, it’ll cost more to buy a new set of tiles than it would have cost to hire a competent tiler.

  8. I’m watching YouTube videos on how to use a tile-cutter. The problem is that if I get it wrong and break half the tiles, it’ll cost more to buy a new set of tiles than it would have cost to hire a competent tiler.

    I bought a tile cutter. Ruined every test tile I tried. Fuck that. Buy a cheap tile cutting machine. Mine was £40 from B&Q. A bit messier than a cutter but so much more dependable.

  9. Lots of Great Paid Holiday mugs should keep their money for a rainy day–ie the deluge on its way. No point in a new granite kitchen in the house you cant pay for any more on £94 a wk UC.

  10. Bloke in North Dorset

    “ I’m watching YouTube videos on how to use a tile-cutter. The problem is that if I get it wrong and break half the tiles, it’ll cost more to buy a new set of tiles than it would have cost to hire a competent tiler.”

    I can do most things around the house if I need but I learned a long time ago that by the time I’ve gone through the learning experience and bought the specialist tools I might as well get someone in. It’s also better for marital harmony 🙂

  11. And don’t buy cheap ready mixed grout like I did. It looked great when I’d finished, then it shrank as it dried out overnight and looks terrible but I haven’t the patience to redo it.

    The next time I tiled I used Mapei powdered grout and it’s great. You soon get a feel for how much water to add.

  12. Even if I know what I’m doing and have done the job before that waas probably 20+ years ago, and where did I put the tools? It will take forever, with that re-learning curved, cost more than I thought with all the extra tools and bit I may not need, and there is no guarantee that I will be entirely happy with the result. OTOH I won’t be any more satisfied if someone else does it.

  13. Battery Chicken,

    avoid Mapei silicone if you can. Nice colours but they seem to have changed the recipe and it fell off/came away after a few hours, previous batch ( circa 2010 ) was fine. Used Parasilico instead and that was great.

  14. @AndrewM : “I’m watching YouTube videos on how to use a tile-cutter. The problem is that if I get it wrong and break half the tiles, it’ll cost more to buy a new set of tiles than it would have cost to hire a competent tiler.”

    Tile cutter with a dry diamond cutter blade. If you can’t get the table model (usually rentable somewhere) an angle grinder with the correct blade ( any decent DIY should have those) will do the trick.

    Noisy , may want to wear a proper facemask, but *much* easier on tile-wastage.

  15. Lord Finchley tried to mend the Electric Light
    Himself. It struck him dead: And serve him right!
    It is the business of the wealthy man
    To give employment to the artisan.

    Hilaire Belloc

  16. I’ve done a great deal of tiling over the years. Walls, floors, swimming pools, mosaics. For tools, Screwfix is your friend. The essentials.
    Tile cutter/snapper. If you’re not embarking on a major project the Rubi Manual should serve. But for heavy floor tiles paying extra for the Rubi Star would be worthwhile. The extended fence will keep the cut squarer and make angle cuts easier.
    It is worth getting an electric table saw. Much quicker & accurate cutting L-shapes. The McAlister looks good. Unfortunately they don’t seem to do the pull-over saws cut from the top, any more. Glad I haven’t lent mine to anyone.
    A small size angle grinder will come in useful. I always use an ordinary stone cutting wheel rather than a diamond. You can shape curves with it & plane tile edges if the fit’s tight.
    A hand tile scorer & tile nippers for getting around pipes etc.
    If you really fancy yourself, a tile saw blade in a fretsaw for cutting a shape out of the centre of a tile after drilling a hole to put it through. I have a marvellous electric tool does this but you won’t fancy spending the £600 it cost.
    Some proper tile bits if you’re contemplating holes. Drill at slow speed with lots of water or you’ll burn them.
    For setting out you’ll need a square & a couple of levels. 6ft & 2ft should do but a short one can be handy as well. A chalk line is useful. On glazed tiles, a fine waterproof felt tip for marking. Removable with spirit BEFORE grouting. On non-glazed, pencil.
    For the adhesive a notched tiling trowel & a couple sizes filling knives for awkward areas. Grout goes on with a rubber trowel & the surplus comes off with a squeegee. 6″ of rubber hose if you want to iron the grout lines. Saves wearing your finger tips away.
    That lot won’t leave you much change out of 300 quid. But that’s what a tiler might charge you for 12m2 of tiling & you’ll still have the tools. Very useful if that desk flying you’ve been doing becomes surplus to requirements & you need to get a proper job.

  17. One thing I left out. A tiler’s carborundum stone. Use it to clean up the edges of tiles you.’ve cut or snapped

  18. “So, yes, we would expect those savings to be run down, to produce a boost in spending.”

    No, the savings won’t decrease by spending. All spending does is move the savings around.

    Saving is the excess of income over consumption. When you spend, which is dis-saving, the community’s income, and by extension its saving, rises by the same amount. Saving, in the aggregate, remains unchanged. This is Keynes’ Paradox of Thrift. MMT also.

    Only taxation removes saving. Given the weak profit outlook, there will be very little of that. Spending, however, means that businesses will resume investment, which will give rise to additional saving. So we would expect that the saving ratio will rise with increased spending, not fall.

  19. Apparently he’s afraid that once people get into the habit of saving they will continue to save.

    How can the government control you if you’re not living hand-to-mouth? How can he enact his grand plans if you have the capability to, even for a limited time, say ‘no’?

    How long before he takes the grand idea of the Canadian Finance Minister and starts to advocate for the seizure of private retirement savings?

  20. Something about 1919 in the UK – was there any savings to go with that pent up demand? Like there was in the US?

    He always seems to forget these details.

  21. For tile cutting – recently I got handed a tile job at work. Never done it before. Tried the manual but it was a pain. So I bought a cheap electric tile saw. Like 80 bucks. Worked like a charm.

    Kept it, made work reimburse for the other tools.

  22. Anyone with sense is paying off debt not saving

    Current interest rates won’t last forever, unless there is a Great Reset post pandemic governments worldwide will be waiting for inflation to work its magic

    We have money in a passive tracker earning just over 4%, while our previous ‘best buy’ savings account is down to 0.5%, and premium bonds are at 1% nominal (average luck with our investment size is now around 0.7-0.8%). Locking in doesn’t get much more than 1%

    So it’s low/medium investment or pay off the mortgage early as far as I can see

    We have been waiting for our plasterer since January…. he is at capacity like most tradesmen. Home improvements are all very well if you can get the right person, in many areas they simply don’t exist

    Given the government’s plan to destroy the car industry I think we’ll keep our current earth killing machines and run them into the ground pending acceptable affordable EVs, if they ever arrive with the infrastructure to support them

  23. @Starfish

    In the economic sense, a consumer who is paying off debt *is* saving. Their net savings are increased by doing so, or vice versa, their net debt is reduced. People paying off debt before an anticipated interest rate rise is one of the mechanisms by which interest rate expectations can affect households’ savings rate.

  24. I’ve finally, at long last, got a tiler.

    Tiler #8: We’ve no capacity.
    BiG: Do you still have no capacity if I pay 40% premium on labour costs?

    Markets work.

  25. If not most certainly vast numbers in UK are 1 payday away from being unable to cope. Despite well off mugs like Theo there is going to be no economic boom. Defunct businesses and lost jobs are not pre-cursor to a boom unless it is the kind made by explosions.

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