“More bullish on UK consumption”

The key chart

**Estimated growth in excess UK money holdings in £mn** (Source: CMMP)

The key message

UK households (HHs) were already “poised to disappoint” before COVID-19 hit as post-GFC consumption drivers proved unsustainable. During the pandemic, consumption fell much faster than incomes as savings increased markedly. HHs continued to accumulate money holdings at rates well in excess of the pre-COVID period in 1Q21 while YoY declines in consumer credit hit historic levels.

Monthly money flows followed the timing of lockdown restrictions and relaxations closely. This suggests a relatively large element of “forced” savings that could be released relatively quickly to support economic activity. That said, much of these accumulated savings have accrued to HHs that already have sizable savings, have higher incomes, and are older – such HHs typically spend less from any extra savings they accumulate.

Excess money holdings reached £139bn at the end of 1Q21 (CMMP estimates) and could total £164bn by the end of 1H21 (below the OBR’s forecast of £180bn). The latest Bank of England forecast suggests that 10% of these excess money holdings will be spent over the next three years, compared with 5% previously (and current OBR forecasts). This c£16bn spending boost is likely to be front loaded into 2H21 and 1H22.

It is reasonable to assume that a large proportion of this will be directed towards durable goods whose consumption was delayed during lockdown (eg, car sales). So-called “social consumption” will naturally benefit too, but there is only so much time that can be made up – you can only eat so many meals in one day!

Please note that the summary comments above and charts below are extracts from more detailed analysis that is available separately.