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Lockdown savings splurge may herald new 'Roaring Twenties'

Great Gatsby - Warner Bros. Picture/Film Stills
Great Gatsby - Warner Bros. Picture/Film Stills

Britain could be set for another “Roaring Twenties” after the pandemic ends if exuberant families splash the cash saved through lockdown.

Household savings have surged despite the record-breaking recession, which could fuel a remarkable turnaround in the UK's economic fortunes in the years to come, according to a leading economist.

“History in the shape of the 1920s told us, once the [Spanish Flu] pandemic came to an end, also the war to be honest, people were desperate to get out and have a good time,” said Torsten Bell at the Resolution Foundation.

“It is called the Roaring Twenties for a reason. So there are possibilities out there for upside scenarios, even if we shouldn’t be counting on it.”

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Family finances have improved dramatically this year, as those with steady incomes found their bank balances rising as they had few options to spend money.

In the past decade, households have typically saved between 5pc and 10pc of their incomes.

But at the height of lockdown that soared to more than one-quarter, hitting a peak of 28.1pc, according to the Office for Budget Responsibility (OBR).

Households have paid down consumer credit debts by about £18bn since the pandemic began, Bank of England figures show, and stashed away almost £90bn of extra deposits.

As a result they had money to spend when the restrictions lifted over the summer, helping to power the 15.5pc growth in GDP seen over the three months to September.

“The recovery was fuelled primarily by a rebound in consumption as households undertook delayed purchases of durable goods, spent some of the savings accumulated during lockdown, and took advantage of time-limited tax reliefs and incentives for the housing and hospitality sectors,” said the OBR.

However, it is far from certain that exuberant spending will become a permanent habit after the second lockdown ends and restrictions ease.

Instead families may have suffered such a shock from the biggest recession in more than 300 years that they continue to save more and therefore worsen the recovery.

“People have faced this big shock to their livelihoods, being worried about being out of work. Is that going to lead them to save more on average as a share of their incomes compared with what they were doing before the pandemic?” said Richard Hughes, head of the OBR.

“That is possible and if so it could be a further drag on the recovery as people want to hang on to more of their savings in case they do end up facing a spell in unemployment.”

The OBR predicts a 15.1pc fall in household consumption this year, followed by a rebound of 7.5pc in 2021 and 9.7pc in 2022.

But after that, growth falls back below 2pc per year for the rest of its forecast that runs to 2025.