- Consumer spending has recovered, even though consumer confidence is low
- Britons are saving at extraordinarily high levels, even though they are losing money in real terms as a result
The trauma inflicted on the economy by coronavirus is having perplexing effects. One, as Andy Haldane, the Bank of England chief economist, pointed out a couple of days ago, is that consumer spending has recovered, even though consumer confidence is low.
Another is that Britons are saving at extraordinarily high levels, even though they are losing money in real terms as a result, because the returns on most accounts are below inflation.
The two are linked. One explanation is that some households are spending and saving more at the same time
During lockdown there was a period of enforced saving. Some households where adults are working from home will have seen a big reduction in normal outgoings on things such as commuting, office clothes and lunches, but with their pay unaffected.
They have therefore been able to resume spending and save more than normal. The most recent savings ratio tops 29 per cent, which is, by our standards – Britain is a debt-happy nation – high. People are setting aside around a third of their incomes, the highest proportion for decades.
Confidence, that elusive factor so important for economic health – or lack of it, lies behind this striking figure. Local lockdowns have alarmed people and, when in doubt, they hoard cash. Up to a point this is rational and desirable as, sadly, jobs will go and incomes will be reduced. But a savings ratio like this is evidence backing the views of Haldane, the leading voice calling for a sense of proportion.
He believes perception of the risks from the virus has become exaggerated and excessive. As he points out, this psychology lies in our past as hunter-gatherers – humans evolved to over-estimate dangers to our lives and livelihoods.
A state of twitchy hyper-alertness was probably very useful indeed when we had to guard against prowling wild animals.