Will we save money for the next rainy day or will we spend it? Shoppers may know what experts don’t, says RACHEL RICKARD STRAUS
‘Will you come to the opticians with me at lunchtime?’ my friend Anna texted on Friday. ‘I’m thinking of splashing out £220 on a pair of sunglasses and want your opinion.’
In normal times, I would have wondered if Anna had totally lost the plot. After all, she’s extremely financially prudent and I’ve never known her to be this extravagant.
But these are not normal times.
Shopping spree: ‘I’ve seen plenty of signs this week that spending will be considerably higher than has been forecast,’ says Rachel Rickard Straus
Over the past year, stuck at home with little to spend their money on, UK households have managed to pile up an extra £180billion in savings. Not everyone has been so lucky, but people like Anna, who have kept their incomes, have seen their savings grow.
The question is, what happens next? Will we save that money for the next rainy day – or will we hit the shops?
The Bank of England predicted in February that we will part with just 5p in every pound we’ve saved.
However, forecasting in this environment is a fool’s game. There is no precedent that we can draw on. Any forecasting model requires so many assumptions and guesses that the end result is bound to be flawed.
But you can look around you to take the temperature of the economy. And I’ve seen plenty of signs this week that it is going to boom, and that spending will be considerably higher than has been forecast.
If we decide a boom is on its way, a boom is what we’ll get
I did accompany Anna to view the Sixties-style, large-rimmed shades. There, the optician told us they had been rushed off their feet.
‘People haven’t been able to spend for a year and want to treat themselves,’ she said. Throughout the pandemic my commute home on the London Underground has been eerily quiet. However, last week, when the Tube doors opened at Oxford Circus, the carriages filled up with shoppers jostling with huge shopping bags.
Over the past week, I’ve spoken to various friends, who are planning to buy a bigger home, plotting an extension, or booking the holiday of a lifetime.
Restaurants and pubs across the country are booked up for weeks. The price of holiday lets is soaring.
Chancellor Rishi Sunak said last year: ‘Our greatest currency as an economy is confidence.’
Investors share the optimism and exuberance. On Friday the value of some of the UK’s best-loved companies hit a record high. The FTSE 250 Index now has a higher value than before the pandemic, as Rosie Murray-West explains in our Wealth section on pages 94-95.
But there is one more reason why relying on Bank of England models to tell us what will happen to the economy is flawed.
What happens next is in our own hands. If we decide a boom is on its way, a boom is what we’ll get. Households will spend more, companies will invest more and so jobs and wealth will be created.
And if we’re all convinced that a terrible crash is around the corner, we’re more likely to get one. As Chancellor Rishi Sunak said last year: ‘Our greatest currency as an economy is confidence.’
I advised Anna to buy the glasses. She looked fabulous in them. Of course, topping up pensions and savings is a wise and essential move.
However, if you can afford to both save and splurge, there’s nothing wrong with splashing out on the odd thing that you need or on experiences that you know you’ll enjoy as well.
So won’t you join me in my optimism? Our bounce back is going to be brilliant, right?