Fears of economic recovery after the ping epidemic prompted households to email away another £7bn
- The bank’s former chief economist Andy Haldane relied on this pile of cash to fuel Britain’s recovery as Covid restrictions were lifted
- Deposits are still piling up, raising concerns that a post-pandemic rebound may have already stalled
Britons saved another £7.1bn in July as pingdemic and Covid concerns push shoppers to hold onto their cash.
Households have been guzzling money since the pandemic hit when lockdowns wiped out opportunities to spend.
The surge in savings in July brought the total in bank accounts since the Covid outbreak in the UK to nearly £230 billion, the Bank of England says.
Britons saved another £7.1bn in July as the pingdemic and Covid concerns push shoppers to hold onto their cash
The bank’s former chief economist Andy Haldane relied on this pile of cash to fuel Britain’s recovery as Covid restrictions were lifted as casual savers rushed to spend it. Writing in the Mail this year, Haldane said the economy was “ready like a coil spring” to recover.
But deposits are still piling up, raising concerns that a post-pandemic recovery may have already stalled. Ruth Gregory, senior UK economist at Capital Economics, said the numbers “do little to allay growing concerns that the resurgence of virus cases in July and the so-called ‘pingdemic’ have stalled consumer recovery.”
While the £7.1bn was much smaller than the £10.2bn they had tucked away in June, it was much larger than the £4.7bn a month average that households saved before the pandemic. Gregory said: “This is another sign that rising virus cases were undermining households’ willingness to spend in July.”
She added that there was now a growing risk that Capital Economics’ forecasts — which predicted the economy would grow 0.5 percent in July and return to pre-pandemic size by October — would be missed. The numbers will be a fly in the ointment for Chancellor Rishi Sunak, who is preparing for a major spending overhaul next month.
Chancellor Rishi Sunak prepares for major spending review next month
A strong recovery and solid economic growth would boost tax revenues, help him control public debt and close spending gaps in areas such as the NHS, transport and education. But households were still paying off credit card debt in July rather than borrowing more to support spending.
MORTGAGE DEBT DOWN
Households paid off more in July than they borrowed in mortgage debt – for the second time in a decade. A net repayment of £1.4 billion was made following a record June net loan of £17.7 billion, according to data from the Bank of England. The cause was the end of the stamp duty holiday, as the temporary tax relief started to disappear from 1 July.
Mortgage borrowers rushed to complete their purchases by June 30. Lender approvals for home purchases are at their lowest level since July 2020. But Paul Stockwell, of Gatehouse Bank, said: “Demand remains very strong and will be reflected in property pricing behavior throughout the remainder of this year. ‘
Laura Suter, head of personal finance at AJ Bell, said: ‘In July net borrowing was nil, compared to an average loan amount of £1.2 billion per month in pre-pandemic times.’ The pingdemic, in which millions of workers were told to self-isolate, meant businesses had to close due to a lack of staff and households were unable to deposit their money.
Shortages of truck drivers, coupled with rising demand for certain goods, also created bottlenecks in supply. Businesses from Nando’s to McDonald’s ran out of essentials like chicken and milkshakes, and a lack of microchips has hit the auto industry. But economists have admitted there may be a second surge in spending once Covid concerns ease back to normal.
Suter added: “It’s clear why people might decide to go out and spend their money instead of saving it, as interest rates on deposits have fallen again to all-time lows.”
A new survey from the Confederation of British Industry (CBI) found that businesses continued to see strong demand — private sector activity grew in the three months to August at the fastest pace since May 2014. Consumer services businesses such as retail stores and bars, saw activity grow at the fastest pace since February 2018.
Anna Leach, deputy chief economist at the CBI, said: “However, there are several headache-causing issues that should not be ignored if we are to regain lost economic ground. There is growing evidence of a labor shortage, in some cases having a material impact on business operations. Disruption of global supply chains has led to sharp increases in material and shipping costs, further increasing the pressure.”