Christmas spending spree unlikely

A study by the Institute for Fiscal Studies (IFS) suggests there is unlikely to be a Christmas spending spree despite consumers having around £150 billion of savings, with much of the money people have saved during the pandemic likely to remain in bank accounts until there is an upturn in the economic outlook.

A survey carried out for the report asked people what they would do with an extra £500 and, on average, respondents said that only £55 would be spent over the next three months. The IFS found that richer households were more likely than poorer households to use the extra funds to add to their savings, while poorer households were more likely to use the money to reduce their debts.

Peter Levell, Associate Director at IFS and the author of the report, said “Survey evidence on which consumers accumulated savings, and on individuals’ desire to spend out of income gains, both suggest consumers will draw down the extra savings they built up over the pandemic slowly rather than quickly.”

Mark Franks, Director of Welfare at the Nuffield Foundation said “While the immediate recovery from the pandemic-induced recession has been faster than many expected, supply limitations in combination with a reluctance on the part of households to quickly draw down their savings will limit the extent of consumer-led growth. It is also of concern that the poorest households are the most likely to have seen a large proportionate drop in their overall wealth, especially given the high levels of household poverty that already existed before the pandemic.”