Louise Cooper

Why next year could bring a 1980s-style spending boom

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Most forecasts for the economy are pretty grim: bankruptcies, bad debts, job losses and a massive debt hangover leave little room for optimism. But I’m going to try. I think there is a wodge of money burning a hole in UK consumers’ pockets. And once they can, households will go out and spend it.

This wall of money can be seen in the savings ratio — the amount of income that households save. For decades it has wobbled around 10 per cent. But the latest figures from the Office for National Statistics (ONS) show that households are now saving an astonishing 30 per cent of their income. It’s never been so high. In a pandemic, there are fewer opportunities to splurge, and so many households have become big savers by default.

So when the health crisis is under control, will households spend this wall of money? My experience has taught me never to underestimate the average Briton’s desire to spend. Or as the Institute for Fiscal Studies puts it: ‘Backing the UK consumer has historically proven a sound bet.’ This savings glut could set the scene for a 1980s-style consumption spree.

There is some evidence this might be starting already. Firstly, ONS retail sales results for August, September and October have been surprisingly strong, with the latest figure showing retail sales up almost 6 per cent on last year’s levels. That’s amazing given hundreds of thousands have lost their jobs.

Secondly, budget airline easyJet noted in its recent results that once travel restrictions had been lifted to the Canary Islands, it saw huge demand for flights. There is a hidden demand to get away and have fun again.

House prices are at record highs and home sales booming (albeit helped by a stamp duty cut from the Chancellor).

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