Don’t Panic Pike!
Last week the Headlines screamed that the UK economy had constricted by 9.9%, the greatest downturn in our collective fortunes since that well known catastrophe, the Great Frost of 1709. You’ve got to love the press, they do dig out some great trivia!
But if we look at our household finances, it’s hard to tell that there has been a recession at all because most of us have been protected from the worst of the economic fallout by the government, which has acted as a giant shock absorber, protecting jobs with the furlough scheme and businesses with the Loan schemes.
According to The Times (Friday 12th Feb) the Resolution Foundation has found that UK companies have increased their cash buffers by £118 billion since the start of 2020, whereas over the previous four recessions, cash holdings fell by an average of £40 billion.
In aggregate, the UK has emerged from the worst recession in three hundred years with both the household and the business sectors in good health. Household expenditure dropped by 10% in 2020, yet average wages rose. Because households were unable to spend their increased earnings, they have built up “accidental savings” of as much as £250 billion, Andy Haldane, the Bank of England Chief Economist has estimated.
According to Haldane, the economy is a “coiled spring”, ready to unleash all this latent spending into significant growth within the next 12 months. There is no guarantee that this will happen, however, judging by the prepared spending of those who have missed their holidays over the past year or so, it’s going to be a bumper year for consumption.
So, despite the mawkish headlines, there seems no need to panic on the state of our economy. We are in hibernation and we will spring into action once the pubs open!
D. Muirhead
