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UK consumers continue to sit on elevated levels of savings, confounding economist expectations that unlocking the economy would result in a spending boom.
The Bank of England's Money and Credit report for June 2021 showed households’ net flow in to deposit accounts increased in June, to £9.8BN while they borrowed £0.3 billion as consumer credit, on net.
"Households remain cautious due to the pandemic, and continue to save excessively despite the Step Three unlocking in late May," says Gabriella Dickens, Senior U.K. Economist at Pantheon Macroeconomics.
Including June’s rise, Pantheon Macroeconomics estimate that the stock of households’ excess savings - the additional amount saved since the pandemic began above the previous £4.0B monthly average - has reached £172BN, or just over 8% of GDP.
Image courtesy of Pantheon Macroeconomics
Economists had assumed that once lockdown restrictions were lifted these pent up savings would be drawn down, in the process fuelling a post-pandemic rebound.
While this could yet still prove to be the case, a spike in Covid cases in May-July has ensured an air of caution remains amongst covid-weary consumers.
This is in turn reflected by flat card spending trends for this period.
Above: Card spending data from the Bank of England's CHAPS system shows a slowdown in spending despite restrictions easing. Image courtesy of Deutsche Bank.
With cases of Covid 19 falling once more and all restrictions eased, can the economy finally benefit from a release of these savings?
"Households’ spending will soar if they spend even a portion of these savings, but we do not anticipate a large drawdown anytime soon," says Dickens.
According to the economist many households simply will use the cash to pay off mortgage debt or top up their pensions.
"Savings also have been accumulated chiefly by high-income households, who have a relatively low marginal propensity to spend," says Dickens.
"Even if some households do decide to splurge after the lengthy lockdowns, a high proportion of that cash probably will be spent on imported goods and, eventually, overseas holidays, which will not boost GDP," she adds.
A return of overseas travel is likely as the UK government embarks on a process of easing quarantine rules for fully vaccinated travellers.
Elsewhere, the Bank of England data showed net mortgage borrowing reached a record high of £17.9BN in June, just before the lower stamp duty rates began to taper off from July.
Mortgage approvals for house purchase were 81,300 in June, down from 86,900 in April.
Large businesses meanwhile borrowed £0.8BN from banks in June, whilst small and medium sized businesses repaid £0.3BN.