(Bloomberg) — British households saved a fifth of their disposable income in the first quarter as the U.K. returned to lockdown, adding to a cash pile that is now powering a consumer boom.
The saving ratio rose to 19.9%, reflecting the limited opportunities to spend during a period when shops, bars and restaurants were closed in an effort to fight a fresh wave of coronavirus infections. The economy as a whole shrank 1.6%, slightly more than the 1.5% contraction previously reported, the Office for National Statistics said Wednesday show.
A rapid recovery is now under way as Prime Minister Boris Johnson prepares to lift remaining curbs on national life on July 19. The Bank of England last week raised its growth forecast for the second quarter to almost 6%. The expansion is being driven by consumers, who have amassed about 200 billion pounds ($277 billion) on deposit since the pandemic began.
With the economy firing on all cylinders and inflation accelerating, speculation is mounting over when the Bank of England could begin unwinding the emergency stimulus deployed to help Britain though its deepest slump in three centuries. At their latest policy meeting, officials indicated they are no hurry to do so until the economy has fully recovered.
The saving ratio rose from 16.1% in the final three months of 2020. The average in the two years before the pandemic struck was less than 7%.
How quickly the economy recovers depends on the willingness of households to run down their deposits and return to normal rates of saving. A risk is that rising infections driven by the delta variant of Covid-19 prompts consumers to hold higher-than-expected levels of precautionary savings.