A much-anticipated Christmas spending spree is unlikely to materialise despite consumers having around £150bn of savings on deposit to splash on toys, food and festive parties, economists have warned.
According to a study by the Institute for Fiscal Studies, much of the savings built up during the pandemic will remain in household bank accounts until the economic outlook is more upbeat.
A survey that formed part of the analysis for the report found that when people were asked what they would do with an extra £500, they said on average that only £55 would be spent over the next three months.
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Richer households were more likely than poorer households to report they would use the extra funds to add to their savings, the IFS said. Poorer households were more likely than richer households to report they would use them to reduce their debts.
With only two weeks until shoppers seek online bargains on Black Friday, the IFS said shoppers would keep the spending taps open, but would be more circumspect about running down savings.
In the latest figures from the Bank of England, deposit savings increased in September at the same time credit card balances also rose, indicating that better-off households were saving unspent wages while more vulnerable households needed to borrow to fund the purchase of essential items.
Households deposited an additional £9.4bn with banks and building societies in September compared with an average of £8.9bn between April and August.
To capitalise on the expected surge in spending, companies have ramped up their Christmas advertising on social media, TV, newspapers and magazines to record levels.
ITV said this week it was on track to enjoy the best year for advertising revenues in its 66-year history following a year-on-year increase in the first nine months of 30%, to £1.3bn.
Policymakers at the central bank have forecast a rise in inflation to 5% by next spring and a slowdown in GDP growth linked to supply chain issues, such as the hold-ups of vital components for industry from abroad and labour shortages.
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The IFS, which was funded by the Nuffield Foundation to carry out the research, said the composition of spending was also crucial after a bounce back in the sale of goods to levels higher than before the pandemic.
It said the sharp increase meant there was little room for any more explosive growth.
Meanwhile, the purchase of services – from hairdressing to financial advice – had recovered more slowly from a 30% drop following last year’s recession. The thinktank said the slow recovery was likely to continue while wealthy households remained reticent and the incomes of the poorest were squeezed by a mix of high inflation and extra costs related to the pandemic.
Mark Franks, director of welfare at the Nuffield Foundation, said he was concerned that the poorest households were the least likely to increase their spending after suffering a large proportionate drop in their overall wealth, “especially given the high levels of household poverty that already existed before the pandemic”.