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.