Bank of England governor Andrew Bailey thinks consumers will splash out some of the billions they have tucked away during the pandemic – but questions still remain as to when.
Speaking to Radio 4’s Today programme this morning he said it’s not yet known just how much of the £180bn consumers have put in savings accounts will be spent.
The automotive industry is likely to be one of the big beneficiaries of the savings stashed away as consumers look to treat themselves after lockdown.
Experts have told Car Dealer that ‘all the metrics’ point towards a surge in sales as showrooms reopen on April 12.
Bailey said: ‘The question of course is: to what use will those savings be put and over what period of time?
‘It could introduce more consumption and more demand into the economy.’
The governor pointed out that around five per cent of savings could be spent over the next two years but ‘it could be larger’.
Last week, chancellor Rishi Sunak said he is also confident of a ‘consumption-led recovery’ as consumers have a lot of ‘pent-up desire’.
Catherine Faiers, COO of Auto Trader, told Car Dealer today that she believes consumers will have an appetite to spend their savings on cars.
In an interview with Car Dealer Live, which you can watch above, she said all the site’s metrics point to consumers researching their next vehicle now and even if they’re allowed to go on holiday again there’s still a good chance consumers will spend on both.
Faiers said: ‘Consumer [savings] deposits are at four to five times typical levels. The disposable income that we are talking about for most consumers won’t preclude taking out finance on a car and booking a holiday.
‘If you look at who has the income and where those savings sit, it’s no surprise the biggest increases have been in retirees and higher and middle income groups. They have been consistently in employment and haven’t been able to spend in those other categories.’
Fellow advertising portal Heycar has also seen data point towards consumers getting ready to shell out.
Chief marketing officer Karen Hilton told Car Dealer that key data points from Heycar’s users have hinted to bumper months in April and May for dealers after showrooms reopen.
She said: ‘If the Bank of England data is correct then we’re all leaving Covid with an extra £7,000 to £9,000 extra in savings.
‘As dealerships prepare to open on April 12, we’re expecting showrooms to see strong footfall with sales activity anticipated to be high.’
Bailey told Radio 4 that risks and uncertainty do still remain in the economy, including how much of the accumulated £180bn unintentionally saved by high and middle-income households will be spent once restrictions ease.
Some economists have warned that the pent-up demand could lead to high inflation, but Bailey said the central bank does not expect inflation to hit suggested heights of between 4-5 per cent.
Instead, he believes it will return to around two per cent in the next few months.
He added: ‘We now have a more balanced picture of risks. The risks on the upside are that there has been a very large build-up in savings in the economy, largely because people have not been able to do the things they normally do.’
Bailey said the effects of Covid have been very unequal, hitting the poorest hardest – with unemployment still expected to rise.
He said: ‘It has affected the low paid more, because the sectors of the economy that have had a larger shutdown tend to have a greater concentration of low-paid workers.’
Any new Covid variants that require further restrictions and lockdowns would also knock the economy, he added.
But the governor said the Bank of England was ready to use more ‘firepower’ if required, including the introduction of negative interest rates to encourage spending.
