The prospects for a consumer spending boom after lockdown have been downplayed by a senior Treasury official, amid warnings that wealthier families have saved more than low-paid workers during the pandemic.
Charlie Bean, a former Bank of England deputy governor who sits on the government’s budget responsibility committee, said it would take several years for households to spend £180bn in extra savings accumulated mainly by retirees and higher-paid workers during the crisis.
Casting doubt over forecasts for rapid growth in spending once Covid rules have been relaxed, he told MPs on the Commons Treasury committee: “The idea that people will make up for lost consumption by spending it all over the next few quarters once the economy has reopened, I find implausible. It is much more likely it’ll be spread out over several years.”
Ministers are hoping such a surge could kickstart Britain’s economic recovery once lockdown restrictions have been removed this summer. Andy Haldane, the Bank’s chief economist, argued in a Daily Mail article last month that the economy could benefit from “enormous amounts of pent-up financial energy waiting to be released, like a coiled spring” as shop, pubs and restaurants reopen.
However, Bean, a member of the independent Office for Budget Responsibility, said as little as 5% of extra savings would be spent each year, and the bulk of money saved during the pandemic was concentrated among wealthier individuals.
“All the evidence of consumer behaviour is [that] people like to smooth their spendings in the face of fluctuations in income. You would not expect households to go out and blow it all within the next quarter or two,” he said.
“There may be a sort of euphoric post-pandemic effect for people… pleased to get out the other side and treat themselves whether to special holiday or more expensive meals or some fancy car or whatever it is, there may be a bit of that. But it’s reasonable to assume that the bulk of it will be saved.”
UK retail sales staged a modest recovery in February amid a boom in online spending, as consumers prepared for lockdown measures to be relaxed. The British Retail Consortium (BRC) said total sales rose by 1% in February from a year earlier, fuelled by internet shopping and spending on items such as school uniforms.
With the majority of high street shops still closed during the toughest coronavirus restrictions since the pandemic first spread a year ago, online non-food spending rose by 82% in February, well above the 12-month average.
Separate figures from Barclaycard – Britain’s biggest credit card provider – showed overall consumer spending fell nearly 14% in February compared to a year earlier, as the continued lockdown weighed on activity.
It said sales at specialist stores – which includes butchers, greengrocers and fresh food box services – benefited from a Valentine’s Day boost while restaurants were closed, with a record high 63% annual growth rate. Home improvement and DIY spending also rose 10% as consumers look forward to spring cleaning.
Helen Dickinson, the chief executive of the BRC, said the rise in sales last month was encouraging, but that retailers remained worried about the months ahead.
“Many retail businesses will be hoping that customers will return to shops, and have spent hundreds of millions on making their premises Covid-secure, but previous reopenings have shown that demand can be slow to come back. Government has a vital role to play in building up consumer confidence across the country to power the spending-led recovery,” she said.
This content first appear on the guardian