The Bank of England’s chief economist Andy Haldane recently commented that the British economy is like a ‘coiled spring’, ready to bounce back strongly when the pandemic is over.
Bank of England data due to be released next week will show that the pandemic has strengthened household balance sheets, consumer debt has fallen and average bank balances have swelled by more than ten per cent in the last twelve months, the fastest annual growth since the 90’s.
Given the great news announced yesterday, there are more reasons to be optimistic, pubs and restaurants could see a boom because of the Joni Mitchell effect: you don’t know what you’ve got till it’s gone. Spending on home improvements will continue to grow, boosted by the fact that more people are moving house and getting their house ready to put on the market, or making their new house a home. Mortgage approvals at the end of last year were at their highest level since before the financial crisis and there is considerable pent up demand not helped by the shortage of housing stock reported by many estate agents.
This said there are reasons to be cautious, unemployment will begin to play a factor. Just how much unemployment will rise is a matter of huge uncertainty, but if figures continue to rise, as well as the impact on social and welfare caused by unemployment, it can also hold down consumer spending not just by cutting the incomes of the jobless, but also by creating uncertainty among some of those still in work.
While there are widespread expectations that spending post-pandemic will increase, nobody knows for sure how big or long-lasting it will be. And nor does the Bank of England. If it were confident of a big consumer boom, interest rates would not be 0.1 per cent.
All this said, spring is just around the corner and its not only the days that are starting to feel brighter.