A much-anticipated Christmas spending spree is unlikely to materialize despite consumers having around £ 150 billion in savings on deposit to splash out on toys, food and parties, economists have warned.
Much of the savings accumulated during the pandemic will remain in household bank accounts until the economic outlook is more optimistic, according to a study by the Institute for Fiscal Studies.
A survey that was part of the report’s analysis found that when people were asked what they would do with an additional £ 500, they said on average only £ 55 would be spent over the next three months.
Richer households were more likely than poorer households to report that they would use the additional funds to increase their savings, the IFS said. Poorer households were more likely than richer households to say that they would use them to reduce their debts.
With just two weeks before shoppers look for bargains online on Black Friday, the IFS said shoppers would keep spending taps open, but be more cautious about shrinking savings.
In the latest Bank of England figures, deposit savings rose in September as credit card balances also rose, indicating that wealthier households were saving unspent wages while households with higher income. vulnerable had to borrow to finance the purchase of essential items.
Households deposited an additional £ 9.4bn with banks and building societies in September, compared to an average of £ 8.9bn between April and August.
To take advantage of the expected increase in spending, businesses have stepped up their Christmas ads on social media, TV, newspapers and magazines to record levels.
ITV said this week that it is on track to enjoy the best year for advertising revenue in its 66-year history, following a 30% year-over-year increase in the first nine months, to 1, £ 3 billion.
Central bank policymakers have predicted inflation to rise to 5% by next spring and a slowdown in GDP growth linked to supply chain issues, such as blockages of vital components for overseas industry and labor shortages.
The IFS, which was funded by the Nuffield Foundation to conduct the research, said the composition of spending was also crucial after a rebound in the sale of goods to higher levels than before the pandemic.
He said the large increase meant there was little room for more explosive growth.
Meanwhile, the purchase of services -om hairdressing to financial advice – had recovered more slowly from a 30% drop after last year’s recession. The think tank said the slow recovery is likely to continue as wealthy households remain reluctant and the incomes of the poorest are squeezed by a mixture of high inflation and additional costs associated with the pandemic.
Mark Franks, director of welfare at the Nuffield Foundation, said he feared that the poorest households would be least likely to increase their spending after suffering a sharp proportional decline in their overall wealth, “especially given high levels of household poverty that already existed. before the pandemic ”.