Britons Add to Savings Pile as Virus Curbs Limit Spending
(Bloomberg) -- Britons saved 16% of their disposable income in the fourth quarter, adding to a cash pile that could power a consumer boom as coronavirus restrictions are lifted.
The buildup reflects the lack of opportunities to spend during a period when the U.K. was under curbs to contain the pandemic, including a full month of lockdown during November. The economy grew 1.3% from the third quarter, more than previously estimated and sparing Britain the prospect of a double-dip recession, the Office for National Statistics data published Wednesday show.
England this week took a step toward exiting its third lockdown, which began in January, and Prime Minister Boris Johnson is confident that all restrictions can be removed by June 21 if Covid-19 infections keep falling. The hope is that households will splurge savings they accumulated, driving a recovery from the worst economic slump in three centuries.
Bank of England policy makers hold differing views as to how that might play out. Their official forecast anticipates Britons will spend 5% of the savings, but even Governor Andrew Bailey admits that’s a “cautious” estimate and could be exceeded.
Chief Economist Andy Haldane has stated that a “rip roaring” rebound is possible even if households splash even just a little of the 150 billion pounds ($205 billion) of excess savings. His Monetary Policy Committee colleague Jonathan Haskel puts the total savings level at as much as 300 billion pounds by the end of the pandemic.
The saving ratio last quarter followed an unprecedented 25.9% in the second quarter and 14.3% in the third. The average in the two years before the crisis was less than 7%.
The upward revision to growth last quarter was driven by finance and business services and transport, storage and communications. Business investment and government spending grew more than previously estimated, offsetting a downward revision to consumer spending, which fell by 1.7%
While the economy is forecast to shrink this quarter, a rapid recovery thereafter is expected to see the GDP return to pre-pandemic levels by the first half of next year. The BOE sees the economy surging 14% in the year through the first quarter of 2022, an increase unparalleled in modern history.
GDP in the fourth quarter was 7.3% below where it was a year earlier, before the pandemic struck, making Britain one of the worst performers among industrialized nations. The economy shrank a downwardly revised 9.8% in 2020, the most since the Great Frost of 1709.
Separate figures showed the current-account deficit, the gap between money coming into the U.K. and money leaving, widened to 26.3 billion pounds ($36 billion) in the fourth quarter. The gap represented 4.8% of GDP compared with 2.6% in the third quarter.
The deterioration was due to significantly wider trade deficit after companies fearing disruptions stockpiled foreign-made goods ahead of the U.K. completing its withdrawal from the European Union on Dec. 31. Imports rose 12%, more than double the pace of exports. The deficit on investment income narrowed marginally.
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