The Covid pandemic has had a lasting effect on people’s lives and finances.
Over the last 12 months, the UK’s political leaders have wrestled between keeping the public safe from the deadly coronavirus and the subsequent economic impact.
Measures taken to limit the spread of Covid have restricted social movements, dramatically reducing consumer footfall and having a devastating impact on businesses.
Some, particularly those that rely on face-to-face interaction, have closed their doors - be it temporarily or permanently - leaving many people out of work.
The government has offered support through business grants, tax breaks and furlough - though some argue it hasn’t gone far enough in these unprecedented times.
Despite state help, there has been a significant economic hit.
Financial experts at the Centre for Economics and Business Research (CEBR) say the lockdowns have created a £251 billion hole in the UK’s economy this past year.
While the reduction in spending has been huge, a combined report from the CEBR and Scottish Friendly forecasts an additional £50b expenditure once lockdown restrictions have eased.
How much have some people saved?
Though overall income has shrunk in the last 12 months, so has spending.
Many people have taken stock of their finances during the pandemic, looked at their income and outgoing, and plotted a way ahead in the short and medium term.
According to the report, Brits are sitting on a whopping £192b worth of lockdown savings built up since the first restrictions were imposed on 23 March 2020.
Nearly half of Brits saw an increase in their cash savings over the past 12 months, with households primed to spend around a quarter of this amount during 2021.
A separate study by the Office of National Statistics (ONS) details how saving ratios rose from 7% of disposable incomes in the last quarter of 2019 to 9.5% in quarter one of 2020.
This savings ratio peaked at 28% in quarter two - covering the months of April, May and June - when restrictions imposed due to the coronavirus were toughest.
It dropped to 17% in quarter three of 2020 and is expected to rise once again in quarter four to 22%, ahead of the final findings set to be released on 31 March 2021.
The CEBR says the numbers mean that an average household has saved £7,100 in 2020.
So what are Brits likely to do with this cash pot?
What are people saving for?
Those households with extra savings from the last year that intend to spend in 2021 will provide a short term boost to a variety of sectors, according to the Scottish Friendly and CEBR report.
- More than a third of these households (34%) that intend to spend more money in 2021 say their cash will go towards travel and accommodation for overseas holidays;- Nearly a third (29%) say their extra cash will go on travel and accommodation for UK-based holidays;
- After holidays, it is likely that restaurants and cafes will be next to profit (28%), with food and drink (25%), also high on people’s spending priorities;- Nearly a quarter of households (24%) say they will spend additionally on clothing and footwear goods and 23% intend to buy new electronics; - Over a fifth of people surveyed (21%) intend to splash the cash on their cars or vehicles; - Less than one in five (19%) say they had pent-up demand to increase spending in pubs and bars; - Other destinations for pent-up demand for spending include furniture and household equipment (18%), live performances and events (18%), health products and services (14%) and education (10%).
The findings came after studying 50 years of savings data and interviewing 4,000 people.
What could this lead to?
Kevin Brown, savings specialist at Scottish Friendly, warned that strong demand could lead to a rise in inflation beyond the government’s 2% target.
“The extra cash that many Brits have been fortunate enough to save over the past 12 months has been sat idle in bank accounts while people wait for restrictions to be lifted,” he said.
“A large proportion of Brits clearly intend to enjoy the opportunity to finally spend some of that cash over the coming months on holidays, meals out and in the shops.
“This will provide a welcome boost for many businesses, but it could lead to a sharp spike in prices during the remainder of 2021, which risks hurting many savers.
“If interest rates are kept low, there is a real threat that inflation could rise rapidly above the Bank of England’s 2% target and be difficult to control.
“If this is allowed to happen, then it will be UK households who bear the brunt of its force.
“Anyone who has money with a bank or building society, could see the real value of their savings eroded in a relatively short space of time.
“The inflationary alarm bells are ringing and households may want to consider moving away from cash to find opportunities for potentially greater investment growth.”