Why still-cautious consumers could spend big in 2021

The vaccine rollout and households with larger disposable incomes mean it is not hard to see a surge in spending once the lockdown ends, says Hamish McRae. So what could possibly go wrong?

The Bank of England may be prepared for inflation and higher interest rates but are the rest of us?

(Reuters)

Hey, big spender, sang the great Shirley Bassey – and it looks as though this coming year people the world over will heed her call.  

That is the argument in a new paper by Oxford Economics, “Why still-cautious consumers could spend big in 2021”. The argument goes like this. Four things are coming together that will encourage people to spend a lot of their money once the virus is beaten back and confidence returns. They cite “Sharply rising household savings, booming house prices, strong financial markets and unprecedented fiscal support”. I would add the ultra-easy monetary policies of the world’s central banks, which has led to the surge in house prices and equities and will not be reversed for a while yet.  

This is also the view of the Federal Reserve in Washington DC. Its vice-chair, Richard Clarida, said last week: “We have a trillion (dollars) in excess savings. We have checks coming in the mailbox. There will be enough demand.” Other Fed officials have made similar points.